The Investment Advisers Association has a message for state regulators contemplating fiduciary standards for brokers: Don’t extend an “additional layer of substantive regulation” to advisors already registered with the SEC.
Nevada’s proposed fiduciary regulations would duplicate those that already exist at the federal level for SEC-registered investment advisors and would conflict with federal law preventing the states from doing that, IAA General Counsel Gail Bernstein argued in a letter sent Friday to the Nevada Securities Division, which is considering a fairly sweeping fiduciary rule to ensure all investment professionals working with investors in the state put clients’ best interests first.
SEC advisors must manage at least $100 million or more to be covered under SEC registration. IAA represents 650 SEC-registered RIAs who in total manage $25 trillion in assets.
“We therefore have a strong interest in ensuring that the Securities Division does not extend an additional layer of substantive regulation to SEC-registered investment advisors, which would be contrary to the National Securities Markets Improvement Act (NSMIA),” Bernstein said.
The Nevada rule is problematic to IAA because it appears to blanket both state and SEC advisors
“It is not clear as written whether that term includes only investment advisors registered or required to be registered in [Nevada], or also SEC advisors, which would be preempted by NSMIA,” said Bernstein, who asked for specific language to exclude federally covered RIAs.
“We urge the Securities Division to make clear that any final regulation does not apply to SEC advisors or their representatives consistent with NSMIA,” Bernstein said.
NSMIA only gives states the authority to register, license and qualify SEC advisors. States can also investigate and bring enforcement actions against advisors for fraud.
What states can not do is “indirectly” regulate the activities of SEC-registered advisors in the name of pursuing fraud, Bernstein said.
The Advisers Act framework already provides for “fulsome regulation of SEC advisors,” including a fiduciary duty and disclosure of conflicts of interest and gains such as advisory fees, finder’s fees and referral fees, she said.