State securities regulators have approved amendments to their model rule for broker/dealer conduct in order to match the federal standards in the SEC’s Regulation Best Interest, according to the North American Securities Administrators Association.
The amendments to the association’s “Dishonest or Unethical Business Practices of Broker/Dealers and Agents” model rule were originally proposed last November for public comment and update the standing rule to align with Reg BI, which took effect in 2020.
Though the model rule itself does not change state standards, it could act as a template for states to fashion their own rules. NASAA President (and Administrator of the Securities Division in Wisconsin’s Department of Financial Institutions) Leslie Van Buskirk said the group looked forward to working with NASAA members to implement the new standards.
According to NASAA, the amendments add the best interest duty of care for retail clients’ investment recommendations from Reg BI into the model rule. The changes also would prohibit broker/dealers from using potentially misleading titles like “adviser” or “advisor,” which could intimate a fiduciary relationship between client and broker when none exists.
NASAA hopes more states will adopt the model rule to create uniformity between them and have more state-registered advisors with similar compliance requirements to their federally-registered peers (currently, advisors managing over $100 million in client assets must register with the SEC, while advisors below that AUM can stick with state registration).
During the period Reg BI was initially proposed and approved, many said the SEC was not going far enough to equalize the playing field between b/ds and RIAs, suggesting brokers should be subject to a fiduciary standard akin to advisors. Some states, including Massachusetts, Nevada and New Jersey, mulled creating fiduciary rules on a state level for reps within their jurisdiction.
Under the leadership of Commonwealth Secretary William Galvin, Massachusetts’ Securities Division successfully passed a fiduciary rule. The robo-trading app Robinhood challenged the validity of the rule in court, and the state’s highest court eventually upheld it.
But critics of state fiduciary efforts like the Financial Services Institute have long argued that different standards could lead to further confusion for reps operating in several states, with FSI General Counsel David Bellaire saying in 2019 such a scenario “will lead to a patchwork of varying requirements across the country, confusing investors and creating uncertainty for advisors.”
Additionally, in the run-up to last year’s presidential election, Mark Quinn, the director of regulatory affairs at Cetera Financial Group, suggested to WealthManagement.com that if Trump won, we might see a renewal in activity and interest on the state level for more robust fiduciary protections.
