New Jersey releases rule to impose fiduciary duty on brokers

State Securities Bureau says SEC's Regulation Best Interest 'does not provide sufficient protections'

Apr 15, 2019 @ 3:07 pm

By Mark Schoeff Jr.

New Jersey brokers would have to meet a higher investment advice standard under a rule proposed Monday.

The measure would impose fiduciary duty on brokers, subjecting them to a higher requirement than the current suitability standard they must meet. The regulation also would codify fiduciary duty for investment advisers, who already must adhere to it.

A broker who fails to act as a fiduciary would be engaging in an "unethical or dishonest business practice," the proposal states.

Last fall, the state solicited comments on a pre-proposal. Many of those who responded urged the state to wait for the Securities and Exchange Commission to issue its own advice reform final rule, the centerpiece of which is Regulation Best Interest, to raise the broker standard.

The SEC is expected to act this summer.

But New Jersey signaled Monday that it has decided to proceed.

"As several commenters to the pre-proposal noted, the proposed SEC standard is greater than that of the suitability rule but is less than that of a fiduciary duty," the New Jersey proposal states. "The [Securities] Bureau believes that the SEC Regulation Best Interest does not provide sufficient protections for New Jersey investors."

The public will have until June 14 to submit comments on the proposed rule. The securities bureau can then modify the proposal or adopt it as is.

Under the New Jersey regulation, brokers would have to make recommendations about securities and provide investment advice "without regard to the financial or any other interest of the broker-dealer, agent, adviser, any affiliated or related entity … or any other third party."

Brokers also must recommend the "best of the reasonably available options" when opening or transferring assets to a specific type of account or suggesting that clients purchase securities or other investments.

The proposal also states that disclosing conflicts of interest is not enough to comply with the rule.

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