9 Things Commenters Are Saying About Iowa's Best Interest Proposal

Firms have plenty to do to deal with the emergency, and the SEC’s Reg BI already applies to any federally registered broker-dealers with retail clients in Iowa, Tennant writes.

4. Some commenters want safe harbor exemptions for various classes of people or entities.

Nancy Donohoe Lancia, a managing director at the Securities Industry and Financial Markets Association (SIFMA), says, for example, that the Iowa best interest standard should define any broker-dealer or agent who’s fully compliant with the SEC’s Regulation Best Interest standard as being compliant with the state standard.

5. At least one commenter wants a provision in the Iowa regulation that would state that Iowa interprets the NAIC model as the SEC interprets Regulation Best Interest.

Rob Comfort, president of CUNA Brokerage Services Inc., says an explicit provision about how to interpret the NAIC model could maximize standard of conduct harmonization while respecting jurisdictional issues of authority.

6. Some commenters are worried about the possibility that differences between the Iowa proposal and Regulation Best Interest could help investors bring lawsuits.

Kent Mason, a lawyer with Davis Harman LLP who represents a group of financial services companies, says one concern is that the proposal could treat non-fraudulent compliance failures as fraud.

“This characterization is inappropriate and has no basis,” Mason writes. “The Insurance Division should revise its proposed rule to make clear that it does not create or imply a private cause of action.”

7. An insurer group sees the possibility that the proposed Iowa compensation disclosure standard could be different from the NAIC model standard.

Paula Dierenfeld, executive director of the Federation of Iowa Insurers, has asked the Iowa division to confirm that Iowa compensation and compensation disclosure rules will be the same as in the NAIC model.

8. Some commenters are watching for provisions that could create a tilted playing field for financial services sellers.

Barry Delp of NAIFA-Iowa suggests that an exemption in the Iowa proposal might exclude advisory groups or direct marketing firms that sell annuities without actually recommending annuities. Delp says that the division should delete the exemption, and that it should hold those types of sellers to the same standard that applies to a licensed producer.

9. Groups that supported the U.S. Department of Labor’s original fiduciary rule standard are not fans.

Knut Rostad, president of the Institute for the Fiduciary Standard, calls the proposed Iowa best interest standard “a vague and undefined standard” that will be defined by broker-dealers.

Rostand objects to the idea of the Iowa standard being similar to the SEC’s Regulation Best Interest standard.

“A review of letters for the Reg BI proposal raises a basic question: Are there any independent and credible experts who support the rule and also address critics’ concernsabout the rule?” Rostad asks. “There is not one that we can find. There is a divide between Reg BI adherents and fiduciary advocates and investors that is real and deep. They reside on different planets, relying on different data and analysis, speaking different languages. It makes meaningful discussion all but impossible. This lack of meaningful discussion endangers the body politic of the country…..

“This dis-function between what Reg BI is and what Reg BI advocates say it is has created a divide that separates Reg BI adherents and fiduciary advocates into opposing camps that seem to not hear, acknowledge, and comprehend almost any substantive points alike. Basic words or terms such as ‘fee disclosure,’ and ‘mitigation have different meanings.’”

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