Fresh off their win defeating sweeping Maryland bills that would have blanketed advisor reps with a strict fiduciary standard, securities industry lobbyists are facing a fresh challenge in New Jersey in the form of a forthcoming rule that would for the first time apply fiduciary common law standards to any rep offering “investment advice.”
The coming battle over the New Jersey Bureau of Securities rule will test the mettle of the highly successful Financial Services Industry (FSI) and SIFMA lobbyists, who along with other industry influence peddlers, have been able to defeat most, though not all, state fiduciary initiatives.
The industry’s collective mantra?
“Wait for the Securities and Exchange Commission to finish its rulemaking or risk creating a hodgepodge of state regulations.”
New Jersey’s fiduciary rule announcement was met with the familiar securities industry chorus.
Said FSI Executive Vice President & General Counsel David Bellaire:
“While we are still in the process of thoroughly analyzing the proposal, we remain firm in our stance that states should refrain from issuing their own fiduciary duty rules. FSI has long supported a federal uniform standard of care for all investment advice, and we believe the SEC is the appropriate authority to develop such a standard. State-specific standards will lead to a patchwork of varying requirements across the country, confusing investors and creating uncertainty for advisors who are trying to best serve their clients while also obeying state and federal regulations. These varying standards would also drive up compliance costs for financial advisors, ultimately limiting services or increasing costs for Main Street investors. We strongly encourage New Jersey to wait for the SEC to finalize Regulation Best Interest.”
Unlike in Maryland, however, where lobbyists convinced lawmakers to let their bills die, New Jersey is using an already proposed regulation that has the backing of the state’s attorney general. Still, the state securities bureau is steeling for the onslaught. “The bureau believes that the SEC Regulation Best Interest does not provide sufficient protections for New Jersey investors,” New Jersey said by way of a preemptive strike in its rulemaking announcement.
“The bureau believes that imposing a fiduciary duty standard for broker-dealers, investment advisers, agents, and investment adviser representatives protects investors against the abuses that can result when financial professionals place their own interests above those of their customers, will help to reduce investor confusion, and will work to foster public confidence in the financial profession. Accordingly, the bureau determined to proceed with this rulemaking at this time,” the state said.
SIFMA President and CEO Kenneth E. Bentsen, Jr. told Financial Advisor magazine in a statement:
“The promulgation of standard of conduct laws and rules at the state level, while well intentioned, will result in a patchwork of conflicting conduct standards, resulting in investor confusion, and ultimately less access to information and choice of products for investors. Congress has long recognized the importance of uniformity through national standards and SIFMA continues to believe the optimal approach to protecting investors is to allow the SEC – the primary federal regulatory agency – to promulgate a nationwide, heightened, best interest standard of conduct.”