The North American Securities Administrators Association is escalating its call for tougher broker sales regulation, scheduling a Capitol Hill briefing for lawmakers, regulators and the media on March 5.

The legislative agenda rollout will take place in the Rayburn House Office Building beginning at 1:30 p.m., and follows closely on the heels of a letter NASAA sent to the Securities and Exchange Commission on February 18 telling the agency its proposed Regulation Best Interest sales standards do not go far enough to protect consumers.

Regulation Best Interest is a key part of a proposed investment advice reform package the SEC expects to finalize this summer.

Although the proposed regulation requires brokers to act in the best interests of clients, state regulators said the brokerage industry is interpreting it to mean brokers can provide conflicted investment advice as long as they disclose the conflicts. Such conflicts are costing investors some $17 billion in unnecessary commissions and fees annually, according to the White House Council of Economic Advisers.

NASAA is contending that brokerage and insurance industry trade groups’ support of the SEC proposal is proof the rule won’t adequately protect investors. Such associations include the Financial Services Institute, SIFMA and the American Council of Life Insurers, whose members manufacture and/or sell products with commissions. These same groups successfully defeated U.S. Department of Labor fiduciary standards in court last year.

“To these industry groups, no abusive product or practice appears to be off limits,” NASAA president Michael Pieciak said in his letter to SEC Chairman Jay Clayton.

“These groups point to the commission’s ‘interpretive nuances’ as confirmation that pretty much anything and everything will be considered ‘acting in the client’s best interest’—where disclosure occurs,” Pieciak said.

NASAA said the SEC should ensure that the final regulation address the most egregious kinds of broker conduct, including engaging sales contests, receiving revenue-sharing payments and selling a limited number of high-cost products.

Going Viral

The NASAA letter has gone viral, at least among legal, regulatory and industry circles.

“The letter was very, very critical and was basically saying, ‘You’re catering to the brokerage industry and giving them free rein to provide conflicted advice if they disclose,’” said Michael B. Koffler, a partner with Eversheds Sutherland.

“Instead of asking for tweaking, NASAA said: ‘Hey SEC, you’re missing the boat,’” Koffler said.

If timing is everything, it’s worth noting that the NASAA briefing comes one week before what promises to be a contentious first congressional hearing into the SEC’s proposal. Entitled “Putting Investors First? Examining the SEC’s Best Interest Rule,” the hearing will be held March 14 by the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets.

The hearing will offer Maxine Waters (D., Calif.) her first chance as chair of the House Financial Services Committee to question SEC Chairman Clayton about the agency’s Regulation Best Interest since she assumed the gavel in January. She has criticized the SEC and Clayton in the past for not creating a fiduciary standard of conduct for brokers.

“Waters has already made clear that this will be a grilling for Chairman Jay Clayton over what Reg BI will and won’t do,” Koffler said.

While “there is not an avenue for lawmakers to directly get involved with the rulemaking, they could form a resolution denouncing it, but can’t impact timing,” he added.

“We won’t see [the hearing] slowing up rulemaking, but the real question is whether that grilling, combined with the recent letter from NASAA and proposals from states, will cause the SEC to come back and say there are certain conflicts that can’t be disclosed,” Koffler said.

NASAA’s letter to the SEC criticizing its rule “has a lot more force, a lot more energy” than congressional hearings, he added.

The fact that the SEC proposal is being viewed as more of a cosmetic fix “is why you see states like Nevada and Maryland proceeding with their own proposals,” Koffler added.

Rules in both states are proceeding quickly, and if passed would give brokers, salespeople and dually registered advisors almost no exemptive wiggle room from taking on full fiduciary responsibilities if they work with investors in these states and try to call themselves advisors, attorneys say.

Which puts NASAA, which counts all state securities regulators as members, very much in the limelight these days.

“We are inviting policymakers and consumer/investor advocates and industry,” NASAA spokesman Bob Webster said in an e-mail.

NASAA’s legislative agenda for the March 5 event is:

The speakers will be: