“In other words, a broker-dealer who is a dual registrant would be required to provide ongoing advisory services to its brokerage customers pursuant to a brokerage account agreement that likely provides for transaction-based compensation,” Traxler said.
“Obligating broker-dealers (and their agents) who are dual registrants to an ongoing fiduciary standard for solely incidental investment advice provided to a brokerage customer, as contemplated by the proposal, could result in many New Jersey investors with a small or moderate amount of investable assets to lose access to their chosen financial professional," she said.
When faced with the increased costs associated with monitoring customers’ accounts on an ongoing basis, “a broker-dealer would be forced to either move their brokerage customers to fee-based advisory accounts (but only if it is the 'best of the reasonably available options') or cease providing brokerage services to those customers’ accounts altogether,” Traxler said.
“Many negative unintended consequences will result if New Jersey investors lose access to financial professionals as a result of the proposal,” she added.
The association also noted that FSI members operating in the state generate $2.2 billion of economic activity, supports 22,761 jobs, contribute nearly $10 million annually to state and local government taxes and account for about 11 percent of the financial services industry contribution to the state economy.
Policy experts believe the SEC’s reluctance to hold broker-dealers to a fiduciary standard will lead to an increase in state actions. Nevada has a similar proposal in the pipeline as New York battles it out in court with the securities industry over its rule to apply a fiduciary standard to annuities sales.