A coalition of major trade groups is calling for the North American Securities Administrators Association (NASAA) to withdraw proposed changes to its business rules, calling those changes “confusing” and “unnecessary.”
NASAA’s amendments intend to protect investors by implementing stricter codes of ethical conduct for financial advisors and similar professionals or firms.
The coalition issued a joint letter expressing concern the proposed changes could make it more difficult for advisors to operate and block clients from accessing products and services. The groups are concerned the proposed changes could contradict or overlap standards already in place, such as those enforced by the National Association of Insurance Commissioners, which require annuity sellers to put the client’s best interest ahead of their own.
“This NASAA model would directly conflict with those, and we have concerns about what that would mean for compliance, the impact on the industry and access to products,” Sarah Wood, Insured Retirement Institute (IRI) director of state policy and regulatory affairs, told InsuranceNewsNet.
“NASAA’s proposed changes would fundamentally rewrite the existing regulatory regime, including Reg BI, under which broker-dealers provide services to investors,” Kevin Carroll, SIFMA deputy general counsel, wrote in a letter addressed to NASAA.
“The proposed rule is unnecessary and could cause significant unintended consequences for our members, their clients and the industry,” Dale Brown, FSI president and CEO said in a separate statement.
Key comments from trade groups
NASAA’s Dishonest or Unethical Business Practices of Broker-Dealers and Agents, or its business practices rules, establish ethical codes of conduct for financial professionals. However, the organization put forth suggested amendments earlier this year after allegedly finding that some financial professionals were failing to meet Reg BI standards.
The trade groups that gave their feedback made it clear that they do not oppose regulations that protects consumers, but that the suggested rules would be detrimental for advisors and clients alike.
Wood highlighted three major points of contention, namely: the new definition of a professional recommendation could begin to include advertisements or social media posts; the new conflict-of-interest provision could begin to include work benefits or retirement incentives; and the new provision about reasonably available alternatives is too broad.
Additionally, in instances where NASAA’s new regulations deviate from NAIC best model practices, Wood raised the question of how that would be reconciled for compliance purposes.
“I think those are the three issues that we really see as being unworkable and having an impact on the industry in terms of compliance and what that might mean for decisions that firms have to make in terms of [not] offering certain products anymore,” Wood said.
In their joint letter, trade groups emphasized that restrictive, confusing regulations could cause financial advisors or firms to limit or restrict their products or services, which could then prevent consumers from being able to access key financial tools.
Most believe that changes to the rule are unnecessary as best model regulations such as those enforced by the NAIC have already been adopted in 40 states.
“There is a growing consensus that Reg BI is increasingly well-functioning and effective in protecting investors after more than three years of closely watched regulatory examinations, enforcement actions and an ever-growing body of regulatory guidance,” Carroll said.
Wood added, “We fully support the existing regulatory framework, but going above and beyond it would simply add another layer of compliance complexity.”
Committee to review feedback
Fred Baldassaro, NASAA director of communications, said all feedback received will be reviewed before the way forward is determined. However, he said there is no set timeline for this process.
“The relevant NASAA project group and committee will review and consider the comment letters…in determining whether there should be any changes made to the proposal and in preparing a recommendation to NASAA’s board and members on how to proceed,” he said.
Most groups have called for the proposal to be abandoned entirely, but some have indicated a willingness to discuss more changes they believe could be more feasible.
“We welcome the opportunity to further engage with NASAA and seek solutions on this rule proposal,” Brown said in an independent statement from FSI.
NASAA has said that all comments received on its proposal will be made public.
The joint letter was issued by the IRI, FSI, SIMFA, NAIFA, Finseca, ACLI, ASA, the U.S. Chamber of Commerce, the Ohio Chamber of Commerce, the Florida Security Dealers Association, the Coalition for Business Development, the National Association of Real Estate Investment Trusts, the Institute for Portfolio Alternatives, the Defined Contribution Alternatives Association, the Real Estate Roundtable and the Defined Contribution Real Estate Council.
Rayne Morgan is a Content Marketing Manager with PolicyAdvisor.com and a freelance journalist and copywriter.
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