In testimony delivered yesterday, SIFMA expressed strong concern over a Massachusetts proposal to create a state-specific fiduciary standard for broker-dealers and their representatives, and urged the Commonwealth to defer to Regulation Best Interest (Reg BI) – a new nationwide best interest standard which was approved by the SEC in June 2019 and is fully operational in June 2020.
“Reg BI has meaningfully raised the bar for financial professionals and includes many important investor protections while preserving investor choice. We are very concerned that the proposal exceeds the state’s authority, will diminish investor access to advice, products and services and will increase investor costs,” SIFMA President and CEO Kenneth E. Bentsen, Jr. said in testimony today. “We respectfully suggest that you delay any decision making until after Reg BI is fully implemented and the SEC, FINRA, and the Division and other state regulators have the chance to examine firms for compliance.”
The testimony focused on the impacts of the rulemaking on Massachusetts investors and broker-dealers, specifically:
- It is premature for the Division to declare Reg BI lacks sufficient protections for retail investors. Reg BI establishes significant and material changes to the way brokerage services will be provided and adds meaningful new investor protections. The Division should delay action for at least 18 months and then assess whether any further steps are necessary.
- Imposing an ongoing fiduciary duty on brokerage accounts would limit investor choice and access to products and services. This would be a major disservice to the many Massachusetts consumers who choose to hold such accounts today and who want to continue to receive episodic brokerage advice. Brokerage services represent an important, cost-conscious choice for retail consumers and provide access to affordable advice, particularly for buy-and-hold investors and investors with moderate resources.
- The proposal would negatively impact the state’s municipal and corporate markets. The proposal could restrict the ability for firms to conduct principal transactions with retail broker-dealer clients, impacting the ability to efficiently satisfy retail investor demand for Massachusetts municipal and corporate offerings. This would likely depress Massachusetts issuers’ access to a broad retail investor base affecting the price of their securities while increasing the cost to such investors.
- The proposal raises a variety of pre-emption and other legal issues. For example, The National Securities Markets Improvement Act (NSMIA) precludes states from imposing regulations on SEC-registered advisers, and limits state authority over these advisers’ representatives. NSMIA also precludes states from imposing new books and records requirements on broker-dealers and their representatives, yet broker-dealers would need to create substantial new records to document compliance with the rule. The investment advisory requirements on broker-dealers that would be imposed under the rule would be in conflict with both federal and state law.
The full testimony and comment letter further outline these views.
SIFMA also joined 12 financial services trade associations in a comment letter echoing these concerns and highlighting key problems with the draft regulations. That letter can be found here.
