Financial Advisor IQ: Fiduciary Battle Spreads to New Jersey, Massachusetts and Nevada

“All New Jersey residents should be treated equally under bureau regulations,” Christopher Iacovella, CEO of the American Securities Association, a lobby group for middle-market financial services firms, says in a comment letter.

“Preserving financial advice for the wealthy while leaving the middle class to fend for itself or unnecessarily use more expensive account options is a bad outcome for New Jersey. It unfairly disadvantages those in the state who are most vulnerable to our nation’s savings crisis,” Iacovella adds.

Both the ASA and FSI are also against the use of specific language in the proposed rule. The proposal requires broker-dealers to recommend investments “without regard to” the financial interest of the broker-dealer, representatives or third parties.

Those three words — “without regard to” — originate from the Dodd-Frank Wall Street Reform and Consumer Protection Act but has since been clarified by the SEC with Reg BI, according to FSI.

The SEC notes that the Dodd-Frank Act didn’t intend to require broker-dealers to provide conflict-free recommendations, FSI explains.

Instead, the SEC omitted “without regard to” from Reg BI. In its place, the SEC requires broker-dealers to “act in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other interest of the broker-dealer ahead of the interests of the retail customer.”

Also in Reg BI, the SEC notes that the “without regard to” language “could ultimately harm retail investors by reducing their access to differing types of investment services and products and by increasing their costs.”

ASA argues that the “without regard to” standard reflects an approach to consumer protection that has been proven to hurt the very people it attempts to help — the same standard used in the now-vacated DOL rule, ASA adds.

“Our concerns of consumer harm are not theoretical,” ASA says. “The SEC found that there was a significant reduction in retail investor access to brokerage services, and … available alternative sources were higher priced in many circumstances once firms began implementing the DOL’s fiduciary rule.”

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