A New York lawmaker is working on legislation to raise investment advice requirements in the state.
Assemblyman Jeffrey Dinowitz, D-Bronx, was the author of a bill that would have required financial advisers in
the state to disclose whether they are fiduciaries. That measure
died in the legislative session that ended last month, as he put it on hold while the Securities and Exchange Commission completed work on its
investment advice rulemaking package.
Mr. Dinowitz is now crafting a bill that likely would impose a fiduciary standard on all advisers in New York. He hopes to introduce it at the beginning of the next legislative session in January.
"This would be a stronger bill because advisers are not required to act in a consumer's best interest," said Mr. Dinowitz, chairman of the New York Assembly's
Judiciary Committee. "New York — of all places, given our role in the financial industry — we need to do everything possible to ensure consumers are protected from unscrupulous advisers."
Mr. Dinowitz said he is watching "what is happening in other states to come up with the best possible legislation."
Next door in New Jersey, the state's Bureau of Securities is taking comments on a fiduciary duty proposal until July 18 and
will hold a public hearing the day before that deadline. In addition,
Nevada is working on a fiduciary regulation and
Massachusetts recently introduced a proposal.
The brokerage industry is pressing to stop the state-level fiduciary activity, arguing that the SEC rule package — the centerpiece of which,
Regulation Best Interest, raises broker requirements — should be the national standard. Otherwise, financial firms would have to comply with a "patchwork" of state regulations.
Mr. Dinowitz said he'd prefer a national advice rule, too, but the SEC's effort fell short.
"I don't think their changes went far enough to protect consumers," Mr. Dinowitz said. "The federal government in the Trump era doesn't work to protect average people."
A similar sentiment from New Jersey Gov. Phil Murphy, a Democrat, is driving his state's fiduciary regulation, which likely will face an industry lawsuit.
But Laura Posner, a partner at Cohen Milstein Sellers & Toll, said the New Jersey measure is likely to stand up to a court challenge. She said it's written in a way that it doesn't violate the
National Securities Markets Improvement Act, a 1996 measure often cited by the industry when it calls for federal preemption of state laws.
"New Jersey has been very thoughtful and careful to ensure that its rule does not run afoul of NMSIA," said Ms. Posner, who was chief of the New Jersey Securities Bureau from 2014 to 2017. "That's why you saw Massachusetts to a large extent copy New Jersey's rule."
While there's momentum in New Jersey and Massachusetts, observers have been waiting since the comment period in Nevada closed in March for a new development there. A placeholder bill in Illinois appears to have died in the legislature, and a
bill in Maryland also was killed in this year's legislative session.
"It's a mixed bag," said Bruce Ashton, a partner at Drinker Biddle & Reath who
tracks state investment-advice rules activity. "It's a complex issue, even for regulators who are inclined to go forward."
Some states may still be waiting to see how Reg BI plays out and whether court challenges to state regulations are successful. But Ms. Posner is expecting continued momentum.
"I think you'll see more states take a stand," she said. "It's up to states to do what's best for their retail investors."
Mr. Ashton is watching "blue states," such as California, Oregon and Washington.
"It wouldn't surprise me if any one of those were to take action," Mr. Ashton said.
There's also the possibility that other states will follow the New York Department of Financial Services and introduce regulations that
raise standards for insurance sales, he said.
