Posted on August 19, 2019

Wayne Chopus, IRI President & CEO

No, this is not about a book or movie sequel but it is an appropriate description for the
potential outcome of the recent proliferation of individual state proposals to impose fiduciary standards of conduct on broker-dealers and investment advisers.  Already, Nevada, New York, New Jersey, Maryland and Massachusetts have advanced efforts to create regulations despite the U.S. Securities and Exchange Commission’s (SEC) recently finalized Regulation Best Interest that creates an enhanced national standard.

The Insured Retirement Institute (IRI) has long supported the principle that those who provide professional financial advice should do so in their clients’ best interest. After the controversial fiduciary regulation adopted by the U.S. Department of Labor was vacated by a federal court last year, the SEC forged ahead and crafted a rigorous new standard, which was announced in June.

Reg BI significantly enhances existing federal investor protections through substantial new regulatory requirements on financial services companies, broker-dealers, and other financial advice professionals. These new protections and requirements have considerable teeth because they are backed by extensive federal enforcement powers. Later this year, the National Association of Insurance Commissioners (NAIC) is expected to finalize similar enhancements to its standards for annuity recommendations to complement Reg BI.

As new, conflicting state standards have been introduced, IRI has acted immediately to advocate that states delay finalizing those proposals to allow Reg BI to be fully implemented and evaluated. We believe Reg BI will achieve states’ consumer protection goals without the need for further rulemaking. Plus, it will preserve investor choice and access to the products and services that consumers need to achieve their financial goals.

At the very least, states should assess how well Reg BI would fit within the broader tapestry of regulations governing financial professionals’ conduct of before deciding if further regulatory action is needed.

But as some states choose to ignore this recommendation, they edge closer to inviting disruption to millions of Americans who rely on professional financial services to meet their retirement income needs.

While the state proposals to date have some similarities, they also include significant differences that cannot be easily reconciled. And while a handful of states may cause ample disruption, this will exponentially worsen if more states follow.

Adoption of these proposals would result in a patchwork of inconsistent, conflicting, or duplicative rules that would significantly impair investors’ access to valuable financial products and professional assistance about whether, when, and how to use those products.

The vast majority of financial professionals have clients in multiple states. An advisor in New York may have clients in Massachusetts and New Jersey, for example. An advisor would likely find it impossible to comply with three state regimes plus the federal standards. Consumers would undoubtedly suffer as advisors would seek to limit their exposure to conflicting rules and others may decide to leave the profession.

The need for professional financial advice has never been greater as employer-provided defined benefit plans disappear and workers become more responsible for their own retirement planning through workplace 401(k) plans and Individual Retirement Accounts.

Not only will 10,000 Baby Boomers retire daily for several more years, but millions of Gen X and millennial workers need to be actively managing their retirement financial futures now. To meet these needs, access to a choice of professional financial advice will be critical to establishing an effective retirement income strategy. IRI research shows that consumers with advisors report greater retirement preparedness and better outcomes than those without professional advice.

Our objective should be to protect consumers, hold industry to high standards, and punish bad actors but also allow consumers a choice of financial advice to help them achieve their financial goals. Regulations should not strangle this choice.

Combined, Reg BI and the anticipated NAIC model regulation will offer powerful consumer protections, regulatory consistency and enforcement muscle. If states find gaps in those protections, a discussion about how best to fill them should occur, but we should first assess the new and existing protections before piling on as many as “50 shades” of new regulations and harming consumers’ access to financial advice.

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