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Regulation and Compliance > State Regulation

3 Ways to Protect Investors’ Access to Financial Advice

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The unprecedented wave of uncertainty we are all living through as America grapples with the coronavirus pandemic – including temporary business closures, job losses and severe market volatility – has highlighted the incredibly important role independent financial advisors play in the lives of their clients.

During times like these, investors who may have spent decades saving and preparing for retirement need a financial professional’s steady voice to reassure them as they navigate the economic downturn, and to help them get back on track when the country emerges from this challenging time. Younger investors, whether they’re established professionals themselves or just starting in their careers, need clear guidance and partnership as well.

Independent financial advisors – many of whom have powerful experience in navigating turbulent times after guiding clients through the 2008 financial crisis – are the ideal professionals to serve in this vital and heroic capacity today.

For all these reasons, we have one message for legislators and regulators, both in the states and at the federal level: Now more than ever, we must not lose sight of the importance of protecting investors’ access to financial advice.

One crucial element of preserving this access is ensuring that states recognize financial services as part of the nation’s critical infrastructure, consistent with the U.S. Department of Homeland Security’s guidance. We have reached out to the nation’s governors urging that any “stay-at- home” orders reflect the federal guidance and do not impede essential capital market functions. This will help advisors and their teams perform the limited – but highly important – client service functions that only can be completed on-site at their offices.

At the national level, the following are some of the key initiatives we are focused on to help preserve access at this difficult time:

1. Ensuring the success of Regulation Best Interest.

We cannot overstate how vital it is to have a clear, strong and consistent set of guidelines for all financial services firms and advisors. The disclosure and conflict mitigation measures in the SEC’s new Regulation Best Interest (Reg BI) represent a major step forward in reducing confusion and strengthening protections for investors while also enabling them to continue to receive guidance according to the business model that works best for them.

We have committed significant resources to ensuring that our member firms are positioned to successfully implement and comply with Reg BI, including our recurring Reg BI Workshops at various member events.

In light of the challenges posed by the coronavirus pandemic, we believe the best way to keep financial firms and advisors on track for the most successful possible transition into the Reg BI era is for the SEC to provide our industry with temporary regulatory relief. We are in dialogue with regulators to determine the concrete measures that will most effectively accomplish this crucial goal.

2. Protecting independent advisors’ business models.

Educating lawmakers and regulators on the need to preserve independent contractor status for the independent advisors in our industry has long been a central focus for FSI. Empowering advisors to operate their own businesses gives them the autonomy and flexibility to serve their clients appropriately, and forms one of the key factors in our industry’s underlying economic model.

Unfortunately, advisors continue to face challenges to their independent contractor status, especially at the state level. We were pleased to secure an exemption for advisors in California’s sweeping AB 5, which imposed strict new requirements for classifying workers as contractors starting this year. With similar measures under consideration in other states, however, it’s clear that there is still much work to do in educating lawmakers about the possible unintended consequences of such measures.

To guide Main Street American investors through this anxious time, advisors need to be able to count on a basic level of stability when it comes to their own practices. Throwing the viability of their businesses into doubt by potentially re-classifying advisors as employees would be exactly the wrong move in today’s uncertain environment.

3. Combating regulation by enforcement.

Broadly speaking, ‘regulation by enforcement’ refers to enforcement actions that are based solely on staff guidance, or which create new requirements without transparent rule making processes that include notice to stakeholders and reasonable provisions for comment.

In more colloquial terms, it means changing the rules in the middle of the game. And, as investors try to deal with disruptions to their long-term financial plans, this unfortunate practice threatens to paralyze firms and advisors and deprive their clients of timely guidance.

We are committed to pushing back against this phenomenon in order to avoid a repeat of harmful instances like the SEC’s recent share class disclosure initiative, which penalized firms for abiding by practices on share class recommendations that were previously deemed compliant with applicable rules.

Throughout this year and beyond, we will continue to monitor regulatory initiatives like FINRA’s new examination program to ensure that they adhere to their stated goals without driving increased instances of regulation by enforcement.

Independent financial advisors are part of the critical professional infrastructure that will help Main Street American investors cope with our current period of profound uncertainty and get our nation back on its feet when we emerge from this crisis. In order for Americans to benefit from their expertise and guidance, it is incumbent on our lawmakers and regulators to protect investors’ access to professional financial advice – just as it is incumbent upon us to continue to fight for it.

FSI CEO Dale BrownDale E. Brown, CAE, is president and CEO of the Financial Services Institute.


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