States Attempt to Pick Up Slack of Fiduciary Rule Defeat, Reg BI

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The department of Labor’s fiduciary rule was vacated by a U.S. circuit court in 2018. Some states are looking to fill the hole left by that defeat—and fill what they feel are gaps in the SEC’s Regulation Best Interest—with their own state-level fiduciary rules for financial planners and broker-dealers.

Some states had already begun the process of implementing their own rules prior to the fiduciary rule defeat. While Nevada, New York, Massachusetts, Connecticut, Illinois, and Maryland have attempted to implement their own fiduciary rules, New Jersey has been stealing headlines recently, as it recently closed the comment period on its proposed rule.

The Financial Advisor IQ article, “Advocates Clash at New Jersey Fiduciary Rule Hearing,” reported that a final New Jersey rule is expected to be released sometime in the fall.

“State-level fiduciary efforts have swelled up in response to dissatisfaction with the SEC’s new standard of conduct for broker-dealers, Regulation Best Interest,” reporter Ian Wenik wrote in Financial Advisor IQ.

These state-level fiduciary rules could serve as bellwethers for other states and could reach well beyond state lines and impact your firm. Forbes reported, in an article titled “What a New Jersey State-Level Fiduciary Rule Might Mean for Brokers,” that the New Jersey rule would impose a uniform best interest standard on RIAs and broker-dealers alike.

Proponents of the New Jersey rule say it picks up the slack left by the SEC’s recently passed Reg BI, which they say does not go far enough to protect investors. Opponents claim the rule would be at odds with Reg BI and would create confusion for RIAs and broker-dealers that would ultimately end up harming investors. An InvestmentNews editorial noted, “Whether broker-dealers or investment advisory firms like it or not, states have the right to propose such rules.”

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Ana Trujillo Limón is senior editor of the Journal of Financial Planning and the editor of the FPA Practice Management Blog. Email her at alimon@onefpa.org, or connect with her on LinkedIn

One thought on “States Attempt to Pick Up Slack of Fiduciary Rule Defeat, Reg BI

  1. It will be an interesting time. Once this set of varied rules goes into effect and advisors must live with those rules (and there are state rules today about investment advice; and insurance is totally state regulated) we will be facing an interesting new argument. Planners often have opposed state regulation of “financial planning” because of varied state rules. Yet we are almost all registered as advisors in multiple states. I wonder how the “multiple regulation” argument continues to hold water. My sense is that those of us that are CFP licensees have adopted a higher standard and can apply that over a broad set of rules. Easy for us. For the rest of the folks I’m not inclined to be concerned. States can do this because their elections are much less costly and the big donor firms and organizations can’t exercise the financial muscle that they can at the federal level.

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