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XY Planning Nixes Supreme Court Challenge of Reg BI, Plans to Take Fiduciary Fight to States

XY Planning Network (XYPN), a membership organization comprised of more than 1,300 independent fee-for-service financial advisors, will not appeal its 2nd Circuit ruling on Regulation Best Interest.

XY Planning Network (XYPN), a membership organization comprised of more than 1,300 independent fee-for-service financial advisors, will not appeal its 2nd Circuit ruling on Regulation Best Interest.

However, the organization has engaged Duane Thompson, president and founder of Potomac Strategies LLC, an industry lobbyist and fiduciary advocate, to continue its fiduciary fight 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, more widely known as the Merrill Lynch Rule.

Thompson will assist XY Planning Network in its state advocacy efforts for a fiduciary standard for all financial advice, and that the fee-for-service business model be regulated like other fee models (e.g., assets under management).

In September 2019, XY Planning Network co-founders Alan Moore and Michael Kitces made waves when they announced their decision to file a lawsuit against the SEC challenging Regulation Best Interest during the opening of their annual national conference.

In its lawsuit, XY Planning claimed that the SEC’s rule ignores Congress’ requirement to delineate between brokerage sales and investment advice, creating a competitive disadvantage for registered investment advisors. Registered investment advisers have traditionally been held to a fiduciary standard, while brokers-dealers were held to the less stringent suitability standard.

After a nine-month legal battle to vacate the new broker advice standard ensued, the U.S. Court of Appeals for the 2nd Circuit ultimately ruled against XYPN on June 26, 2020, acknowledging that Regulation Best Interest would “put [XYPN] and other investment advisers at a competitive disadvantage compared to the status quo.”

The SEC claims that Reg BI goes beyond the 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. Under the regulation, brokers are required to provide customers with a document that discloses the types of services offered, the legal standards of conduct, applicable fees, and conflicts of interest that may exist.

When the Court’s decision to uphold Reg BI was announced, XYPN leadership vowed continued support and advocacy for “distinguishing between the product distribution and capital formation function of brokers, from advisors who are in the business of advice and who owe a fiduciary duty to their clients.”

A number of states, including Massachusetts, Nevada, New Jersey, have enacted their own state-based fiduciary duties that uniformly apply a fiduciary duty for both investment advisers and brokers providing advice in their states.

“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. “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.”

He added, “Ultimately, XYPN 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.”

XY Planning Network bills itself as a financial planning platform for fee-for-service financial advisors who want to serve Gen X and Gen Y clients, providing comprehensive financial planning services for a monthly subscription fee and without product sales or asset minimums.

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