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Mentor RIA Consulting

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State Specific Fiduciary Rules: How Far May They Go?

Posted on February 14, 2019 at 12:48 PM
With the failure of the DOL Fiduciary Rule and the sluggish pace of the SEC Best Interest proposal, many states are looking at taking their own steps towards strengthening the rules for investment professionals so as to provide more protection for consumers of investment advice and related activity. This state action is receiving mixed reviews for a variety of reasons.
Apart from the polar opposites of the rules are not strong enough and the rules are too limiting for investment professionals, there are other important concerns. One of the criticisms which seems appropriate is the likelihood if not certainty that investment professionals working in more than one state will be subjected to different standards and outcomes. This would not only impose additional costs in time and effort in keeping up with the varying requirements, but additional review to ensure that the right standard is being applied in each case. It would also have the rather interesting and possibly unfortunate outcome that consumers would be treated differently depending on their state of residence.
Another important consideration may be the potential for conflict between federal and state law in some cases. For example, the National Securities Markets Improvement Act applies federal pre-emption to state rules affecting SEC registered investment advisers. This means that a state applying a different standard from that the SEC applies with regard to investment advisers may find its legislation unenforceable. Currently, the state of Maryland is in the process of changing rules for a variety of financial professionals, including investment advisers. Though the changes likely will affect state-registered investment advisers it seems that those changes will not apply to SEC-registered advisers. This creates another mismatch and is not a strong selling point for state initiated changes.

Categories: Compliance, General, RIA Business

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