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Regulation and Compliance > Federal Regulation > SEC

SEC Advice-Standards Package Likely by Q3; States March Ahead

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While the 35-day partial government shutdown “really slowed progress” at the Securities and Exchange Commission, the agency will issue its final advice-standards package, including the controversial Regulation Best Interest, likely in the third quarter, according to Neil Simon, vice president of government relations at the Investment Adviser Association. “It’s going to happen.”

Speaking at the TD Ameritrade National LINC conference in San Diego, Simon said that the Washington rumor mill also has House Financial Services Committee Chairwoman Maxine Waters, D-Calif., holding a March hearing to grill SEC Chairman Jay Clayton on the upcoming advice-standards plan.

Reg BI under the three-pronged SEC package is “pretty broker friendly” and “pretty ambiguous in spots,” Simon said. The Reg BI plan also “doesn’t deal with dual registrants,” Simon said. “There are a lot of dual registrants out there; it really doesn’t deal with them cleanly.”

As for the plans’ Customer Relationship Summary disclosure form, or Form CRS, “it’s a mess,” Simon said. “There’s going to be a lot of negotiation” among the SEC Commissioners on CRS. With the states now moving on their own fiduciary rules, with Maryland’s “ambitious” proposal released in February, the patchwork state plans “will make compliance very, very complicated,” Simon added.

Stradley Ronon attorney William Mandia writes in the law firm’s most recent Fiduciary Governance blog that Maryland’s proposed legislation comes on the heels of a report by the Maryland Financial Consumer Protection Commission issued in January 2019, which suggested that the fiduciary duty standard “currently imposed on investment advisers in Maryland needs to be strengthened, as it is currently weaker than the national fiduciary duty standard.”

Maryland’s proposed bill “is sweeping in scope and, if passed in its current form, would have a profound impact on the financial services and insurance industries in the state,” Mandia stated. “Among other things, the proposed legislation is very broad as applied to insurance producers, making them fiduciaries in the context of a wide range of transactions.”

Stradely Ronon attorney George Michael Gerstein noted in a comment to IA it remains unclear whether the federal law under the SEC’s Reg BI “would preempt the conflicting state law[s].”

Attorneys at Drinker Biddle & Reath stated during a late January webcast that the proposed fiduciary regulation issued by Nevada in January is sending shockwaves through the broker-dealer and registered investment advisor communities.

The Nevada plan “is a much more expansive and broad rule than most observers were expecting,” added Brad Campbell, the former head of the Labor Department’s Employee Benefits Security Administration, who’s a Drinker Biddle partner located in Washington.

Fred Reish, a partner and head of Drinker Biddle’s ERISA Financial Services Group, stated that the “biggest difference” he sees between the Nevada proposal and the SEC’s proposed Reg BI is that Nevada’s proposal includes a “private right of action.”

In separate comments to IA, Simon said that while “there certainly could be minor change on both Reg BI and on the Investment Adviser Act interpretive” language, he expects to see “much greater change on Form CRS.”

Skip Schweiss, TD Ameritrade Trust Company president and managing director of advisor advocacy, told IA in commenting on Reg BI, that “while raising the standard of care for investors can’t be a bad thing,” his concern is that Reg BI has “the potential of making brokers and investment advisors look the same when they’re not. Or even further blur the line between brokers and investment advisors. We believe there should be brokers and investment advisors — they serve different purposes, they get compensated in different ways, and that’s all fine.”

That said, “consumers should have a relatively easy way of telling the difference and making informed choice.” He adds Reg BI’s “proposed 4-page disclosure document — for brokers as well as investment advisors — has not been viewed by commenters as neither clear nor simplistic.” — Melanie Waddell


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