In the race to get fiduciary rules on the books before the Securities and Exchange Commission finalizes its Regulation Best Interest, Nevada and New Jersey are two states that have a “strong desire” to push their regulations through “and hope they survive scrutiny,” said attorney George Michael Gerstein, co-chair of Stradley Ronon’s fiduciary governance group.
Unlike the Maryland fiduciary legislation that was torpedoed by the state’s Senate Finance Committee on April 4, New Jersey “doesn’t need votes, per se, just to follow their administrative law in promulgating a regulation and hoping it stands up in court,” Gerstein said.
The New Jersey Bureau of Securities followed through on its plan to create a uniform fiduciary standard for broker-dealers and investment advisors on April 15. The New Jersey plan, as Gerstein notes, “comes nearly three months to the day after Nevada proposed a similar fiduciary regulation.” New Jersey will take comments on its plan until June 14.
Stradley Ronon attorney William Mandia added that “Maryland’s rejection of the proposed fiduciary legislation is a sign that state legislatures are likely to take a wait-and-see approach until the SEC’s proposed Reg BI and the NAIC’s revisions to its model rule for suitability in annuity transactions are both finalized.”
However, Mandia continued, “The potential remains that a small number of states may take a different approach by using their regulatory agencies to create rules that heighten the standard of care similar to what New York’s Department of Financial Services did last year when it adopted Insurance Regulation 187.”
Nevada’s Legislature passed its own fiduciary statute for securities in 2017, but the law couldn’t be implemented until regulations were put into place. Nevada issued those proposed regs on Jan. 18, with a comment period that expired on March 1. Nevada is expected to hold a hearing on its fiduciary plan in the near future and has to provide notice 30 days before the hearing.
Two of the nation’s top brokerage firms — Morgan Stanley and TD Ameritrade — warned the Nevada Securities Division in comment letters that if the state moves ahead with its fiduciary rule in its current form, they’ll stop serving customers in the state.
Meanwhile, SEC Chairman Jay Clayton said at the recent SEC Speaks event that a final vote on Reg BI was “on our agenda to get done before September” — some have said perhaps by July.
The Wall Street Journal reported Wednesday that SEC Commissioner Robert Jackson, the sole Democratic member, is expected to leave his post later this year. Jackson is expected to join New York University Law School for the fall semester, according to a university spokesman and an email from the institution’s dean, Trevor Morrison, the Journal reported.
Jackson’s term expires in June, but commissioners can stay on up to 18 months after their term expires or someone is appointed to replace them.
President Donald Trump announced on April 3 that he has nominated veteran securities lawyer Allison Herren Lee to serve as an SEC commissioner. Lee served at the SEC from 2005 to 2018 in various roles including senior counsel in the Complex Financial Instruments Unit, and as counsel to former Commissioner Kara Stein, a Democrat.
–Related on ThinkAdvisor: