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FSI Comments on New Jersey’s Proposed Fiduciary Rule

The Financial Services Institute, a trade group representing independent financial advisors and financial services firms, has submitted a 12-page comment letter to the New Jersey Bureau of Securities on its fiduciary rule proposal, claiming that the regulation would limit Main Street Americans’ access to financial advice, products and services.

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The Financial Services Institute, a trade group representing independent financial advisors and financial services firms, has submitted a 12-page comment letter to the New Jersey Bureau of Securities on its fiduciary rule proposal, claiming that the regulation would limit Main Street Americans’ access to financial advice, products and services.

FSI is also urging the New Jersey to extend the effective date of its proposal and provide an 18-month implementation period, rather than the proposed 90-days, between the proposal’s final adoption and its eventual effective date.

New Jersey’s fiduciary proposal requires all registered financial services professionals to act in accordance with the fiduciary duty to their customers when providing investment advice or recommending an investment strategy.

Currently, broker-dealers and their agents are required to abide by a suitability standard and must have a “reasonable basis” to believe a recommended transaction or investment strategy involving securities is suitable for the customer. On the other hand, investment advisers and their representatives are held to a stricter fiduciary duty.

Earlier this month, the Securities and Exchange Commission approved in a 3-1 vote its four-part package of regulations aimed at reforming investment advice standards for brokers and financial advisors, including Regulation Best Interest – the SEC’s broker advice rule, as well as the new Form CRS relationship summary, and two separate interpretations under the Investment Advisers Act of 1940.

The SEC claims that Regulation Best Interest goes beyond the current suitability standard and requires broker-dealers to act in the best interest of their retail customers when making an investment recommendation of any securities transaction or investment.

Form CRS, the standardized form given to clients at the beginning of their relationship with an investment firm, details the required standard of conduct, what services the firm offers, any associated fees or costs paid by the client, potential conflicts of interest, and any reportable legal or disciplinary history.

FSI believes that “there are significant differences between New Jersey’s proposed rule and the SEC’s final Regulation Best Interest which will lead to investor confusion,” and that the state’s proposal would “detrimentally blur the meaningful distinctions between brokerage services and advisory services in New Jersey,” noting that a “broker-dealer’s relationship with its customers is fundamentally different from that of an investment adviser’s relationship with its clients.”

The New Jersey “proposal will serve to disadvantage the basic brokerage model, and result in harm to New Jersey’s retail investors, with a predominant impact on those low- to middle-income retail investors who are residents of New Jersey,” stated FSI in its comment letter.

FSI recommends that New Jersey “consider aligning its proposal with Regulation Best Interest or alternatively providing that a broker- dealer’s substantial compliance with Regulation Best Interest would satisfy the requirements under the proposal.”

New Jersey’s proposal was issued after the Department of Labor fiduciary rule was vacated by the Fifth Circuit Court of Appeals in March 2018, ruling that the agency acted beyond its authority in crafting the rule and expanding the definition of an investment-advice fiduciary.

At the time, New Jersey’s Attorney General Gurbir Grewal said, “If the federal government won’t act to protect investors, then we will.” The DOL plans to issue a new fiduciary rule at the end of the year.

Click here to read FSI’s comment letter in its entirety.

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