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.
