Posted on July 16, 2019

IRI Written Testimony to NJ Bureau of Securities

WASHINGTON, D.C. – Action on a proposed New Jersey regulation should be postponed until state officials can evaluate recently finalized, comprehensive federal investor protections, according to the Insured Retirement Institute, (IRI), the leading trade association for the retirement income industry. IRI is testifying tomorrow on the proposed rule at a New Jersey Bureau of Securities hearing in Newark.

Earlier this year, the Bureau proposed a regulation to “protect investors against the abuses that can result when financial professionals place their own interests above those of their customers…reduce investor confusion, and…foster public confidence in the financial profession.”

On June 5, the U.S. Securities and Exchange Commission (SEC) issued a final regulation – Regulation Best Interest (Reg BI) -- that strengthens consumer and investor protections beyond current law; imposes significant new regulatory and implementation burdens on industry and; relies on rigorous federal enforcement mechanisms to protect consumers.

“In our view, Reg BI will achieve the Bureau’s goals without the need for further rulemaking,” wrote Jason Berkowitz, IRI Chief Legal and Regulatory Affairs Officer, in comments submitted to the Bureau . “Moreover, it does so in a manner that will preserve investor choice and access to the products and services they need to achieve their financial goals.”

IRI explained that the NJ proposed regulation is “inconsistent and incompatible with Reg BI.”

“For the Bureau to create a separate regulatory structure that destroys the distinction between brokerage and advisory services is, at its best, misguided, and at worst, antithetical to the SEC’s policy decision to protect the distinction between broker dealers (BDs) and investment advisors (IAs) in an effort to promote investor choice, contain cost, and ensure investor access to financial advice,” Berkowitz wrote.

He continued, “By rejecting the SEC’s approach, the Bureau threatens to create a regulatory labyrinth for BDs offering services in New Jersey. BDs will not only have to comply with Reg BI but also the Bureau’s more expansive and inconsistent rules (as well as any laws or rules that may be promulgated in other states where they may have clients). The proposal fails to address how this layered regulatory system would impact investor access to financial advice.”

New Jersey, Nevada and Massachusetts, are advancing their own regulations on financial professionals that conflict with the new federal regulation. The states are seeking to revive aspects of a U.S. Department of Labor regulation that was thrown out by federal courts in 2018.

“This desire to bring back a rule that was thrown out in federal court fails to recognize the significant negative impacts the rule was already having in the marketplace, despite the fact that it never become fully effective,” Berkowitz wrote.

IRI concluded its comments saying, “…we fear that the proposal will drive firms to significantly scale back their offerings in New Jersey or potentially even discontinue operating in New Jersey, not driven by a fear of stronger regulation, but rather by simple economics. If this comes to pass, the citizens of New Jersey will ultimately lose access to the wide variety of products and services available to other Americans to help them achieve their financial goals. We respectfully urge the Bureau to refrain from finalizing the proposal at this time and to instead re-evaluate whether the proposal – or some variation thereof – is still necessary once Reg BI has been in effect long enough to assess its effectiveness.”