New Jersey brokers expect industry will push back against fiduciary rule proposal

Brokerage executives predict the industry to put up a fight against the rule, which they say will lead to a complex web of compliance

Sep 27, 2018 @ 5:13 pm

By Greg Iacurci

New Jersey brokerage executives expressed consternation over adding another layer of regulation by requiring them to adhere to a fiduciary standard, predicting officials will face stiff headwinds in getting it across the finish line.

"The state of New Jersey is taking on a tall order in trying to do this," said Michael Karalewich, CEO of Nationwide Planning Associates Inc., an independent broker-dealer based in Paramus, N.J.

"Their heart is in the right place," Mr. Karalewich added. "But there's definitely going to be pushback from the industry. We watched what happened with the DOL [fiduciary rule]. I would expect we'd see some of that here for firms operating in New Jersey."

New Jersey governor Phil Murphy announced Sept. 17 that the state's Bureau of Securities would be issuing a proposal to set a fiduciary standard governing investment advice provided by broker-dealers and their representatives.

The proposal is in response to the death of the Department of Labor's fiduciary rule, which was overturned in court, and the Securities and Exchange Commission's own investment-advice proposal, which isn't yet final but which the governor feels will "fall short."

"They have the [legal] right to do it, I think, but I don't know if it's a smart thing to do," said Damon Testaverde, chairman of Network 1 Financial Securities Inc., a hybrid practice based in Red Bank, N.J. "We need to have efficient capital markets."

"We just have to be careful of what we propose and how we propose it," Mr. Testaverde said.

While specific details of the proposal are still hazy, the governor has said the rule would create a uniform fiduciary standard for brokers and registered investment advisers.

Executives said an additional tier of rules from another entity — the state — would be tough. And New Jersey may be just the tip of the iceberg; experts believe other states could follow suit.

Only six other states have more brokerage firms than New Jersey, which has 472, according to the Financial Industry Regulatory Authority Inc.

"You have costs at the SEC level with regulation, at the Finra level, at the state level. And if there's no consistency, that's where it becomes challenging for advisers, broker-dealers, clients and attorneys," said Thomas Hyland, president of TFS Securities Inc., based in Middletown, N.J.

"Having to answer to three masters and duplicate efforts in improving compliance becomes very challenging," Mr. Hyland said. "If the lines of regulation are drawn as straight, dark, black lines, it would be easy."

Mr. Hyland, whose firm has about 200 advisers and $4 billion in assets, said he is in favor of a fiduciary standard, but that he would prefer a single level of oversight to simplify compliance and supervision. More regulation in the state, he said, may cause smaller firms and advisers to "reconsider their position in the business" and whether "they have the resources, time and money to comply."

"It doesn't mean I have to leave New Jersey, but I won't be calling customers in New Jersey," said Mr. Testaverde of Network 1 Financial Securities. "I'll be calling customers in other states."

Mr. Karalewich of Nationwide Planning Associates, which has around 125 registered representatives and $2.5 billion in assets under management, said the brokerage industry would prefer the SEC to take the lead on governing investment advice.

At the same time, Mr. Karalewich acknowledged that he'd be supportive of New Jersey's regulatory change because it "is what's ultimately best for the investing public."

Further, preparing to comply with the DOL fiduciary rule, which raised investment advice standards in retirement accounts before getting quashed earlier this year, could potentially make compliance with a state fiduciary rule easier, he said.

"It'd be hard not to get behind the concept," Mr. Karalewich said. "It's not going to cause me to change the way that we operate. If the rule is something we have to abide by, then we'll embrace it.


What do you think?

View comments

Recommended for you

B-D Data Center

Use InvestmentNews' B-D Data Center to find exclusive information and intelligence about the independent broker-dealer industry.

Rank Broker-dealers by

Upcoming Event

Sep 10


Denver Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video


The secret to working with next gen clients?

Alan Moore of XY Planning says working with millennials isn't as difficult as some advisers make it sound. Here are three strategies for success.

Video Spotlight

We started as a boutique firm with huge ambitions. Schwab was a perfect fit.

Sponsored by Schwab Advisor Services

Recommended Video

Keys to a successful deal

Latest news & opinion

10 millennials making their mark in Washington — and beyond

These next-generation leaders are raising their voices and gaining influence over financial advice regulation and legislation.

10 highest paid professions in America today

These are the top-paying jobs in the U.S., according to Glassdoor.

Former Merrill Lynch star broker Thomas Buck sentenced to 40 months in prison

He pleaded guilty to securities fraud in 2017; charged clients excessive commissions.

Rules for claiming Social Security at 70

Some individuals' benefits will begin automatically; others have to take action.

Bills would allow employers to help workers pay off student debt, tax-free

Tackling growing loan burdens sparks bipartisan interest on Capitol Hill.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print