New Jersey’s Fiduciary Faceoff

New Jersey’s Fiduciary Faceoff

New Jersey’s pending fiduciary rule has stirred up considerable consternation in the Garden State.

Some market watchers think it will be “the shot heard round the world” while others fear it could spell the end for the brokerage business in New Jersey. 

Last week proponents of the SEC’s recently passed Regulation BI spoke out against New Jersey’s measure, while those who regard Reg BI as relatively weak lauded the New Jersey Securities Bureau for taking a bold stance. 

Micah Hauptman, with the Consumer Federation of America, testified that “Reb BI is politics rather than policy. It’s meant to seem like change but doesn’t in any appreciable way.” Knut Rostad from the Institute for Fiduciary Standards questioned whether there are actually any independent, credible exports who support Reg BI while addressing concerns raised about the measure.  Those who support Reg BI exhort the bureau to give the measure some breathing room until it is better established.

The debate over the state rule follows from the courts vacating the Department of Labor’s proposed fiduciary rule. Subsequently, states including Massachusetts, Nevada, Connecticut, Maryland and Illinois, as well as New Jersey, have considered their own fiduciary rules.

It’s the concept of “best,” that stymies critics, who wonder if phrases like “best or reasonable available options” are truly meaningful or even possible to define. Proponents of the legislation feel strongly that stricter fiduciary standards for brokers and advisors will help everyone. The public will benefit from fewer conflicts of interest while the industry will gain a better reputation.

A spokesman for the Public Investors Arbitration Bar Association (PIABA) noted that of the hundreds of cases he has handled, all of two things in common. First, the investor thinks his broker has put him first and second, the firm denies having a fiduciary responsibility. Current rules contribute to a climate of confusion.

Opponents of the measure fear the possible consequences of the “best of the reasonable available options” clauses. The wording, in their view, could lead to after-the-fact analysis and is highly subjective, putting any advisor in peril even when they act in the best interest of a client at the time of a transaction. 


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