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Industry Advocates Blast NASAA’s Proposed Changes to Business Practices Rule

Industry Advocates Blast NASAA’s Proposed Changes to Business Practices Rule. Alternative investment, financial services, Institute for Portfolio Alternatives, investment, NASAA, non-traded REIT, regulatory, REIT, securities
Industry Advocates Blast NASAA’s Proposed Changes to Business Practices Rule. Alternative investment, financial services, Institute for Portfolio Alternatives, investment, NASAA, non-traded REIT, regulatory, REIT, securities

The North American Securities Administrators Association proposal to update its model rule on “Dishonest or Unethical Business Practices of Broker-Dealers and Agents,” also known as the “Business Practices Rule,” was criticized this week by the Institute for Portfolio Alternatives and the Financial Services Institute in comment letters issued by the organizations to NASAA.

NASAA says the proposed update to the rule is intended to bring it into alignment with the Securities and Exchange Commission’s Regulation Best Interest, as well as “other developments” in the securities industry. Specifically, the revisions to the NASAA rule are intended to:

  • Acknowledge and incorporate by reference the new federal conduct standard applicable to broker-dealers and agents pursuant to Reg BI;
  • Define and clarify various obligations or components of this new conduct standard for purposes of state interpretation and enforcement; and
  • Prohibit misleading uses of the title “advisor” or “adviser.”

Both the IPA and FSI attacked the proposed changes as an overreach that would conflict with Reg BI and lead to retail investors losing access to affordable investment advice.

“Despite NASAA’s stated intent to reflect Reg BI and protect investors, the Proposed Rule conflicts with Reg BI, which would result in hard-working Americans, particularly those with lower incomes and less savings, losing access to professional, affordable financial advice and services,” said FSI president and CEO Dale Brown. “The proposed rule is unnecessary and could cause significant unintended consequences for our members, their clients and the industry.”

Anya Coverman, president and CEO of the IPA was similarly critical of the NASAA proposal, which she says, “goes far beyond Reg BI, fundamentally rewriting the broker-dealer regulatory regime in ways that will negatively impact the broker-dealer model and the ability of investors to diversify their portfolios. Ultimately, the proposal would unnecessarily increase compliance costs for firms and their customers, upend well-understood practices that broker-dealers have relied on for decades, and severely limit the ability of investors to rely on noncorrelated and diverse investments.”

The comment period for the proposal closes on Monday.

NASAA’s membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, the 13 provinces and territories of Canada, and the country of Mexico. NASAA members are responsible for administering state and provincial securities laws.

The Institute for Portfolio Alternatives is an advocacy and education group for the non-traded alternative investment industry. The organization seeks to raise awareness of investment products with low correlation to the equity markets, which include non-traded real estate investment trusts, business development companies, interval funds and direct participation programs.

The Financial Services Institute has more than 80 independent financial services firm members and their 130,000+ affiliated financial advisors – which comprise more than 45% of all producing registered representatives.

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