Regulation and Compliance State Regulation

XYPN Rules Out Supreme Court Challenge to Reg BI

News October 12, 2020 at 11:30 AM
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headshot of Michael Kitces Blogger and XY Planning Network co-founder Michael Kitces

XY Planning Network said Monday that it would not appeal to the Supreme Court an appeals court ruling upholding the Securities and Exchange Commission's Regulation Best Interest.

Instead, the group has retained industry lobbyist and fiduciary advocate Duane Thompson, president and founder of Potomac Strategies LLC, to help XYPN advocate for a fiduciary standard at the state level.

Thompson was the architect of the Financial Planning Association's successful lawsuit against the SEC's since-vacated non-fiduciary broker-dealer exemption, widely known as the "Merrill Lynch Rule."

"As a membership organization with more than 1,300 advisors and RIAs in all 50 states, we recognize the challenges of uniformity in state fiduciary rulemaking," said XYPN co-founder Michael Kitces, in a Monday statement. "Nonetheless, with the firms that manufacture and distribute products blocking effective federal regulation, we believe the states represent the best path to advance fiduciary regulation of advice."

XYPN, Kitces added, "feels a duty to protect not just the RIA community, but the consumers that community serves. With Thompson's contributions, our fight to hold advisors delivering financial advice to the highest standard of care for their clients continues."

Thompson's efforts will also include advocating for the "fee-for-service business model XYPN pioneered be regulated in a manner consistent with other (e.g., assets under management) fee models," XYPN said.

In a Monday email to ThinkAdvisor, Thompson said that he's "excited about working with Michael and the XYPN team. "

As to state fiduciary rule activity in 2021, Thompson said, " It's hard to say how much activity there will be in the states next year, but with 7,300 state legislators, it's probably a safe bet there will be plenty of issues affecting financial planners."

XYPN co-founders Kitces and Alan Moore challenged Reg BI in a September 2019 lawsuit.

The U.S. Court of Appeals for the 2nd Circuit ruled in late June that Section 913(f) of the Dodd-Frank Act grants the SEC broad rulemaking authority, "and Regulation Best Interest clearly falls within the discretion granted to the SEC by Congress."

The court stated that "although Regulation Best Interest may not be the policy that petitioners" XY Planning Network, seven states and the District of Columbia "would have preferred, it is what the SEC chose after a reasoned and lawful rulemaking process."

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