New Jersey is delaying final rulemaking on a fiduciary proposal for broker dealers until 90 days after it lifts a state emergency declaration due to the coronavirus pandemic.
Gov. Phil Murphy issued an executive order on Tuesday, extending various deadlines for rulemaking by all state agencies.
“Every state agency is fully focused on the fight against COVID-19 right now,” Murphy said in a statement. “This executive order provides them with the flexibility they need by extending deadlines associated with their normal rulemaking work until after this crisis is over.”
A week earlier, on April 7, Murphy extended the state’s emergency order that was originally imposed on March 9 when the state had 142 confirmed cases of COVID-19 and seven presumed cases. By April 6, the garden state had 41,000 cases of infections and 1,003 deaths.
“We think NJ’s approach, which keeps the rulemaking alive, while allowing New Jersey to focus its resources on responding to the crisis, achieves both of these goals,” said Micah Hauptman, financial services counsel at the Consumer Federation of America, which supports the New Jersey proposal.
The New Jersey fiduciary rule is one of the most stringent among the handful of states that have proposed one. It would require broker-dealers, agents and advisors to act as fiduciaries when providing investment advice or recommending an investment strategy, the opening or transfer of assets to any type of account, or the purchase, sale or exchange of any security.
That fiduciary duty obligation extends through the execution of an investment recommendation and would not be ongoing unless the broker-dealer was dually registered, functioning also as a financial advisor for a client. In that case, the fiduciary obligation would be ongoing and applicable to the entire relationship with that client. Failure to comply with the fiduciary rule would constitute “dishonest and unethical practice,” according to the proposal.
The state’s Bureau of Securities held public hearings in July and November 2019 on the proposal, but has not yet issued a final rule. At both hearings, consumer advocates expressed support for the rule; broker-dealer representatives opposed it on several grounds, including the confusion that would result if several states had their own rules while the SEC has it own best-interest regulation and the ongoing fiduciary relationship for many advisors.
To date, only Massachusetts has finalized a state fiduciary rule for broker-dealers, which is a watered down version of what its top securities regulator, William Galvin, had originally proposed. Nevada has yet to finalize a rule that passed the Legislature, and Maryland hasn’t revised a proposal that was abandoned. New York state has enacted a fiduciary rule only for broker-dealers selling annuities.
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