June 24, 2019

Advisors are adrift in a sea of regulatory changes and the tide keeps rising: Reg BI, Form CRS and now fiduciary rules are resurfacing.

To help wealth managers sort out what’s happening, here’s what the latest milestones mean and what to expect next.

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The Department of Labor’s fiduciary rule was kaput, vacated by a federal appeals court ruling in a lawsuit brought against the agency by Wall Street lobbyists.

But, like the many-headed Hydra of legend, one fiduciary rule died to be replaced by three proposals from state regulators in Nevada, New Jersey and most recently Massachusetts. The proposed rules would impose a fiduciary duty on advisors and brokers.

Legislators in Maryland and New York have also voiced interest in enacting similar regulations in those states, though those efforts appear to be on hold.

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Should these rules be enacted, their effects will be felt well beyond state lines.

First, the proposals could affect out-of-state advisors serving residents of those states. Are you an advisor in Manhattan serving clients who are residents of New Jersey? Maybe you’re a broker in Florida catering to New Jersey snowbirds? Then you would be wise to follow regulatory developments in the Garden State (and elsewhere), legal experts say.

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Second, New Jersey could be a fiduciary bellwether.

Should New Jersey’s rule be enacted and survive likely court challenges from Wall Street trade groups, then more states may be emboldened to copy it. Massachusetts has already modeled its proposal after New Jersey’s regulation, legal experts note.

“This would not be the first time that states have put together model rules,” says Laura Posner, a partner at law firm Cohen Milstein and a former bureau chief of the New Jersey Bureau of Securities. “That’s what NASAA does. It puts together model rules so that states can adopt them and have uniformity.”

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Several industry trade groups already asked the SEC to weigh in on the matter. The commission has so far declined to do so.

“I think it’s highly likely that industry groups will try to challenge the law, but what the SEC does may drive the success of those suits,” Posner says.

The full article can be accessed here.