New Jersey fiduciary rule: Pressure leads to public hearing, comment deadline extension

Jun 17, 2019 @ 2:22 pm

By Mark Schoeff Jr.

Under fire from critics, New Jersey has scheduled a public hearing and extended a deadline for public comment on a proposal that would impose a fiduciary duty on anyone giving investment advice, including brokers.

The all-day hearing on July 17 at the Division of Consumer Affairs in Newark was announced in Monday's New Jersey Register.

It was scheduled after the state received about 70 requests from industry groups opposing the New Jersey measure, according to Jason Berkowitz, chief legal and regulatory affairs officer at the Insured Retirement Institute.

"We always think it is beneficial to present views live and in-person," Mr. Berkowitz said.

Thanks to the scheduling of the hearing, the comment deadline for the New Jersey proposal was delayed from June 14 until July 18.

New Jersey is one of several states – including Nevada and, last week, Massachusetts – seeking to set their own investment advice standards.

The Securities and Exchange Commission recently approved advice reform rules, including Regulation Best Interest for brokers, that the brokerage industry want to stand as the only advice law in the nation.

"Implementation of state-level fiduciary standards will result in an uneven patchwork of laws that would be duplicative of, different than, and possibly in conflict with federal standards," Ira Hammerman, executive vice president and general counsel at the Securities Industry and Financial Markets Association, said in a statement.

New Jersey and the other states should stand down until they see how the SEC rules play out, Mr. Berkowitz said. The SEC package must be implemented by next June.

"We urge the [New Jersey Securities] bureau to hold off, see if there's a need for additional action and, if there is, then to re-open the rulemaking process at that time," Mr. Berkowtiz said.

For the most part, investor advocate groups have asserted the SEC's new regulations failed to raise the broker advice requirement above the current standard that requires them to recommend investments suitable for their customers. They're cheering on New Jersey.

"Reg BI does little more than codify Finra suitability, so it's entirely appropriate that New Jersey and other states move forward with meaningful fiduciary standards for brokers and advisers alike," said Micah Hauptman, financial services counsel at the Consumer Federation of America.

Mr. Hauptman, whose group is likely to testify at the July 17 hearing, said it's reasonable for New Jersey to extend the comment deadline given the SEC rule was just approved.

Nonetheless, many industry and consumer advocates filed comment letters on the June 14 deadline, which they might now amend. They were arrayed along familiar fault lines, with groups supporting the SEC rules criticizing the New Jersey proposal and those against the SEC rules supporting the New Jersey effort.

"New Jersey investors will receive uniform protections regardless of whether they rely on a broker-dealer or an investment adviser for investment advice," wrote 17 investor and consumer groups in a June 14 comment letter. "In the absence of a strong, uniform federal standard, the need for state action is stronger than ever."

The Financial Services Institute, which represents independent broker-dealers and other independent financial professionals, called on New Jersey to step aside in light of the SEC rules.

"Regulation Best Interest generally imposes more specific obligations on broker-dealers than the principles-based requirements of investment advisers' common law fiduciary duty," Robin Traxler, FSI senior vice president of policy and deputy general counsel, wrote in a June 14 comment letter. "For these reasons, FSI members believe that the [New Jersey] proposal would unnecessarily duplicate and potentially conflict with the requirements of Regulation Best Interest."


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