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Regulation and Compliance > State Regulation

Boffo Year for Markets, but State Fiduciary Regs Loom: SIFMA

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2019 has been a very good year for U.S. financial markets. The S&P 500 has gained 24% year to date through Dec. 4, and the Bloomberg Barclays U.S. Aggregate Index is up 9%, but those gains are not reflected in other key market data.

Through Oct. 31, 2019, for example, U.S. equity issuance declined 6.4%, IPO volume fell a whopping 24.6% and average daily volume of U.S. stocks declined 0.6%, according to SIFMA.  Overall U.S. equity market capitalization increased almost 6% but that was only one-third of the increase in global markets.

Issuance in U.S. bond markets, in contrast, surged 20% with outstanding bond supply up 4.2%, and U.S. retirement assets fell 1.3%.

SIFMA will release final numbers for 2019 during the first quarter of next year, said Ken  Bentsen, its president and CEO, who held a state of the industry briefing with reporters on Thursday.

Also in the new year, SIFMA expects to release the results of a joint project with Cerulli Associates that focuses on individual investors: how they access the financial markets and how they engage with advisors, said Bentsen.

Preliminary results show that almost equal share of investors rely on themselves and work with advisors to manage their financial assets — 35% vs. 39%, according to Bentsen.

Those with advisors report they are highly satisfied. On a scale of one to 7, 80% rate their advisor a 6 or 7 and 75% are highly likely to recommend their advisor to someone else.

As part of SIFMA’s press briefing, Bentsen reviewed a laundry list of regulatory and legislative issues that are important to the securities trade organization and its members. 

Key among them is Regulation Best Interest, which Bentsen said was “the biggest rulemaking” at the Securities and Exchange Commission under Chairman Jay Clayton and one that will be “a heavy lift for members” in the coming year. (It is already in effect, but full compliance isn’t required until June 2020.)  

Reg BI is much more than a disclosure-based rule and has a tougher mandate for broker-dealers than the longstanding suitability rule, said Bentsen.

He stressed that state regulators pursuing their own fiduciary rules should carefully study Reg BI first because those rules, such as New Jersey’s, conflict with Reg BI. The primary conflict is that some state proposals apply a fiduciary responsibility to the entire broker-client relationship, rather than at the point of sale of a particular investment as Reg BI does. 

“Rather than create multi-state compliance models and take on additional liability, firms will go to the common denominator and not do brokerage in a particular state,” Bentsen said. Clients could choose advisor accounts, but then they would end up “paying more for services they don’t even need,” he said.

To date, Nevada, New Jersey and Massachusetts are pursuing their own state fiduciary rules, and Maryland and New York are considering doing the same.

The Labor Department is expected to issue its own fiduciary rule for ERISA accounts that would “cohabitate with Reg BI,” said Bentsen, adding he’s been told it could happen before year-end.

Also on SIFMA’s watch list of future regulations, acccording to Bentsen, are more changes to the Volcker rule, this time related to banks’ engagement with private equity and hedge funds (the changes made this year relate to banks’ proprietary trading) and to the National Market System (NMS), which governs the activities of  U.S. stock exchanges and the Nasdaq market and has not changed since the mid 2000s.

— Check out SIFMA Sees Slower Growth, No Recession in 2020 on ThinkAdvisor.


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