Trade Groups Press New Jersey to Embrace SEC's Reg BI, Drop Fiduciary Plan

Industry groups like Better Markets, the Consumer Federation of America and Fund Democracy, however, voiced support for New Jersey's fiduciary plan.

"Consistent with the advisory role that they play, the proposal requires both broker-dealers and investment advisers to comply with a common law fiduciary duty and applies that standard across a broad range of advisory activities," the groups wrote in their joint comment letter.

"Specifically, the proposal would make it a dishonest and unethical business practice if a broker-dealer or investment adviser provides advisory services while failing to act in accordance with a fiduciary duty."

The proposed uniform fiduciary standard "stands in stark contrast to the SEC's Regulation Best Interest, which maintains different standards for investment advisers' and broker-dealers' advice — one standard that is called a fiduciary duty and one that is not, though neither standard provides the protections associated with a meaningful fiduciary duty," the groups said.

By applying "a strong uniform fiduciary standard to both types of advisory relationship, the New Jersey proposal would ensure that, regardless of what type of professional an investor works with or the type of account they use, they would be protected by the same strong protections."

SEC Reg BI and State Law Preemption

Industry officials and attorneys have also been debating the impact of the SEC choosing not to state whether Reg BI preempts state law.

ASA's Iacovella told ThinkAdvisor in an email that the SEC "did not have to say Reg BI specifically preempts state law; it is the only entity charged by statute with creating and enforcing the securities laws across the United States. The purpose of the Exchange Act and the Securities Act was to give the SEC the power to create and regulate a national market so that businesses did not have to comply with laws in 50 different states."

Stradley Ronon attorneys write in a recent legal brief that the SEC states "that the preemptive effect of Regulation BI on any state law governing the relationship between regulated entities and their customers would be determined in future judicial proceedings based on the specific language and effect of that state law," noting that SEC Chairman Jay Clayton indicated on June 5, when Reg BI was passed, that "he hoped that states would work with the SEC going forward."

The attorneys also noted that a broker-dealer will not be able to waive compliance with Reg BI, nor can a retail customer agree to waive his or her protections under Reg BI.

The SEC also "does not believe Regulation BI creates any new private right of action or right of rescission, nor does it intend such a result," the attorneys said.

In commenting on the final Reg BI, Michael Pieciak, president of the North American Securities Administrators Association and commissioner of the Vermont Department of Financial Regulation, said that "state securities regulators have held state-registered investment advisers to a rigorous fiduciary duty standard and have long advocated for a robust broker-dealer conduct standard so all investors can have confidence that their financial professionals put them first; and will continue to do so."

State securities regulators "thank and appreciate the SEC's willingness to engage with us during this important rulemaking," Pieciak said, adding that state securities regulators are "closely reviewing" the lengthy and complex new rules "against our comment letters and look forward to discussing our findings and next steps with our membership."

— Related on ThinkAdvisor:

• LIMRA, LOMA Offer Online 'Best Interest' Training for NY Reg 187
• SEC's Clayton Explains 'Best Interest' vs. 'Fiduciary' Duty
• A Timeline of the Contentious Fiduciary Rules