Fight for New Jersey fiduciary rule yields doomsday rhetoric from both sides

Stakeholders warned of a 'crisis' and 'decimation of our financial system' at a public meeting held by the New Jersey Bureau of Securities

Nov 19, 2018 @ 1:56 pm

By Greg Iacurci

The fight over New Jersey's proposed fiduciary standard for brokers has only just commenced, and stakeholders on both sides of the spat already are resorting to gloom-and-doom forecasts, linking the rule's fate to an impending catastrophe and a perilous state of affairs.

"By moving forward with regulations, the Bureau of Securities will be creating a crisis," said Dennis P. Cuccinelli, an adviser who testified Monday at a public meeting about the initiative held by the New Jersey Bureau of Securities. He was speaking on behalf of the New Jersey chapter of the National Association of Insurance and Financial Advisors, an organization opposed to the rule.

Mr. Cuccinelli said a state fiduciary standard would put brokers in the "difficult if not impossible position" of deciding how to comply with differing state and federal rules.

Tamar Frankel, a law professor at the Boston University School of Law and a proponent of New Jersey's action, testified Monday that failure to enact greater fiduciary protections could result in "the decimation of our financial system."

A fiduciary's duty of loyalty forms the "backbone of trust in the financial system," said Ms. Frankel, adding that history has shown the system collapses when these duties aren't followed.

New Jersey is seeking to become one of the first states to impose a uniform fiduciary standard for broker-dealers, their representatives and registered investment advisers. Heated words from stakeholders were no doubt heightened by the multiyear fight over the Department of Labor's fiduciary rule. That regulation created a uniform fiduciary standard for brokers and investment advisers when giving retirement investment advice, but was scuttled in court earlier this year.

"We live in precarious times," Knut Rostad, president of the Institute for the Fiduciary Standard, a supporter of the state initiative, said during Monday's hearing. "New Jersey has a unique opportunity."

(More: New Jersey brokers expect industry will push back against fiduciary rule proposal)

New Jersey is attempting to impose tougher investment-advice standards on brokers in the state at the same time the Securities and Exchange Commission is moving ahead with its own initiative to enhance broker standards. New Jersey is only at a pre-proposal stage, so public comments will guide the formation of a forthcoming rule proposal. The SEC formally proposed a rule in April.

But New Jersey's state initiative is quickly emerging as a commentary on the efficacy of the SEC's proposal.

Indeed, Mr. Rostad used the majority of his time to lambaste the SEC rule and the brokerage industry's support of it, calling it a fiduciary standard in name only. The agency's definition of what constitutes investment advice that's in investors' best interests is ambiguous and doesn't do enough to address conflicts of interest, he said.

"Broker-dealers say the SEC's [Regulation Best Interest] is just fine," Mr. Rostad said. "Broker-dealers' longstanding position against a fiduciary standard is plain."

New Jersey's governor, Phil Murphy, a Democrat, had called out the SEC rule's weakness as a reason for promulgating a state fiduciary standard.

However, Mr. Cuccinelli, a member of NAIFA's government relations committee, said the New Jersey Bureau of Securities would be unwise to do anything ahead of the SEC since state rules are almost certain to clash with the SEC's.

Ms. Frankel believes this argument is misplaced, asserting that "lawyers have lived with state regulations for decades and survived."

Today marks the second and last informal conference on New Jersey's pre-proposal. The first was on Nov. 2. The comment period on the pre-proposal ends Dec. 14.


What do you think?

View comments

Recommended for you

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

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

May 14


Retirement Income Summit

Join InvestmentNews at the 13th annual Retirement Income Summit—the industry’s premier retirement planning conference.Clients and investors continue to search for retirement income solutions and personalized investing advice. This... Learn more

Featured video


These are the federal and state rules that will most impact 401(k) advisers

Will Hansen, chief governmental affairs officer for the National Association of Plan Advisors, discusses regulation and legislation poised to have the biggest impact on advisers.

Latest news & opinion

IBD report: Another impressive year

Despite a stock market decline, revenue is up. And the streak isn't expected to end anytime soon.

IBDs with the most CFPs

How many of the more than 83,000 certified financial planners are employed by the big independent broker-dealers?

Richard Thaler wants to use 401(k)s to boost Social Security payments

The Nobel laureate wants to simplify drawing down retirement assets, which he thinks is 'way harder' than saving the money.

InvestmentNews announces 2019 Innovation Awards winners

Sheryl Garrett is this year's InvestmentNews Icon.

Morgan Stanley rides wealth management train to solid first quarter

Chairman and CEO James Gorman expresses excitement about expanding into workplace plans with purchase of Solium.


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