House Financial Services Committee Chairwoman Maxine Waters (D-CA) has joined 11 other current and former lawmakers to file a “friend of the court” brief supporting the state attorneys general petition in the 2nd U.S. Circuit Court of Appeals that seeks to vacate the Securities and Exchange Commission’s Regulation Best Interest.

Both former Rep. Barney Frank (D-MA) and former Sen. Christopher Dodd (D-CT)—the authors of the 2010 Dodd Frank act--have also signed onto the amicus brief alleging that the SEC has failed to create a rule that harmonizes the standard of care for brokers and registered investment advisors that the Dodd-Frank Act directed it to do.

The lawmakers are signing onto the petitions filed last year, by seven states along with the District of Columbia, the XY Planning Network and Ford Financial Solutions filed petitions in the court of appeals seeking to have vacate Regulation Best Interest vacated. The cases have been consolidated.

The group of lawmakers said they “have a strong interest in ensuring that the SEC does not promulgate a less-protective standard for broker-dealers that is at odds with Congress’ plan in passing Dodd Frank.”

Like Dodd and Frank, the states do not believe the SEC standard corrects the conflicting standards applicable to brokers and investment advisers. “Although broker-dealers and investment advisers both offer personalized investment advice and market themselves as trusted financial professionals, the two groups have historically been subject to dramatically different standards of conduct,” the state attorneys general noted in their brief.

Pursuant to the Investment Advisers Act of 1940, investment advisers have a fiduciary duty requiring them to provide advice without regard to their own interest. In contrast, broker-dealers typically are not subject to a fiduciary duty but instead must make recommendations that are suitable for a customer.

“This suitability standard has permitted broker-dealers to offer investment advice subject to conflicts of interest,” the states said.

The harm stemming from this situation has become exacerbated over time as broker-dealers focus more on providing personalized investment advice rather than just on providing order-execution services they traditionally had provided, the states asserted.

XY Planning Network (XYPN) co-founder Michael Kitces asserted in his petition, which has been consolidated with the states’ filing but goes further, that the SEC’s rule allows brokers and reps to offer advice and advisory services without having to register as investment advisors, in violation of the Investment Advisers Act.

“Dodd-Frank did not grant the SEC additional authority to create a new, different standard of conduct governing broker-dealers providing personalized investment advice,” the XYPN petition stated.

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