Trade group attorneys think Kitces and the state attorneys general have decent odds of prevailing. “We agree with the plaintiffs that the SEC overstepped its authority and disregarded the clear intent of Congress when it refused to adopt a uniform fiduciary standard for brokers and advisers pursuant to 913(g) of Dodd-Frank. I think that the plaintiffs have a good shot at prevailing on the merits,” said Micah Hauptman, Financial Services Counsel, Consumer Federation of America.
“It seems clear that Chairman Clayton made a strategic decision to adopt a weak, pro-broker rule that ensured the broker-dealer industry wouldn’t challenge it. We warned Chairman Clayton that if he adopted a pro-industry, anti-investor rule, he risked being sued by other parties. We’re seeing that play out now,” Hauptman added.
The North American Securities Administrators Association, which represents state securities regulators, didn’t join the lawsuit, but will be watching the case carefully, a spokesman told Financial Advisor Magazine. Not only are eight of their state members suing the SEC to overturn Reg BI, but numerous states including New Jersey are working to implement their own tougher fiduciary standards for brokers in the wake of what they claim is a weak SEC rule.
“NASAA is aware of the suit and will be following it closely. NASAA is not a party to the litigation but supports members’ rights to protect their investors,” NASAA spokesman Bob Webster said.
While NASAA has yet to create a model fiduciary rule states can adopt nationwide, that may change in the coming year as Christopher Gerold, the chief of the New Jersey Bureau of Securities, takes the reigns as NASAA president. Gerold is leading the effort to create a stand-alone regulation in his state that would raise investment advice requirements for brokers.