The Financial Services Industry (FSI) reinforced its June threat that brokers would stop doing business in New Jersey if a sweeping fiduciary standard is passed by further blasting the proposal during a regulatory hearing on Wednesday.

WItnesses for and against the proposal testified in the morning hearing, with proponents urging the state to go ahead with the rule to make up for deficiencies in a conduct rule recently approvefd by the U.S. Securities and Exchange Commission.

It's uncertain whether the broker-dealer industry and FSI, which represents 60% of all brokers in the country, can derail or weaken the proposal. Working against the industry lobbyists is that rule does not need N.J. lawmaker approval.

New Jersey Gov. Phil Murphy ordered the state Bureau of Securities to write the regulation requiring advisors and brokers offering retail advice in the state to adhere to a uniform fiduciary standard because, he said, the Securities and Exchange Commission’s new conduct standards, called Regulation Best Interest, do not “sufficiently protect New Jersey investors.”

According to transcripts provided by FSI, David Bellaire, FSI’s executive vice president and general counsel, told regulators at the hearing, “Due to the increased costs associated with demonstrating compliance with the proposed New Jersey fiduciary standard, a broker-dealer would be discouraged from providing one-time or occasional investment advice to its brokerage clients even if such advice is in the clients’ best interest.”

The proposal would hold a broker-dealer who also provides investment advice to a customer to a fiduciary duty standard. The fiduciary duty would be applicable to the broker-dealer’s entire relationship with the customer, regardless of the type of account that the customer holds. The proposal permits transaction-based compensation only if it is the best of the available fee options and presumes a breach of the duty of loyalty for certain recommendations that are not the best of the reasonably available options.

The proposal “will deprive investors of the opportunity to choose the services and account type that best suits their needs and investment objectives," Bellaire said. "In addition, New Jersey investors with a smaller amount of investable assets may lose access to their chosen financial professional who can no longer afford to serve them.  Each of these outcomes is contrary to the best interest of New Jersey investors."

These were among the other criticisms of the N.J. proposal made by Bellaire:

• It would be a burden on dual registrants and broker-dealers who provide solely incidental investment advice, with a confusing and costly regulatory structure.

• Investors’ choices would be reduced, raising the cost of investing, and depriving some investors of access to a financial advisor.

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