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Financial Advisers and Investors Face a Crazy Quilt of State Regulations

financial-advisers-and-investors-face-a-crazy-quilt-of-state-regulations

A hodgepodge of new state and federal rules for financial-services professionals promises to leave investors confused as to the nature of the advice they are getting.

This muddle can be said to have started in 2019, when the Securities and Exchange Commission put the final touches on an investor-protection measure it dubbed Regulation Best Interest, or “Reg BI,” designed to set a minimum standard for financial advice.

At the time, consumer advocates were pushing for what they argued was a higher standard: a fiduciary rule that legally required brokers to be held to the same standard as financial advisers, and that required all decisions be made to the benefit of investors, without loyalty to any financial firm. But the SEC in the end opted for the less-strict Reg BI, which simply says investments proposed by brokers and other financial professionals should align with investor goals, have clear disclosures and be free of conflicts of interest.

Several states seem to agree that a higher standard for broker conduct is still necessary, and have passed or are expected to pass legislation that holds more financial professionals to a fiduciary standard. The state regulations, however, differ slightly from one another, which could add to the confusion for both investors and financial professionals.

“I don’t think anyone, even the consumer advocates, thinks 50 states making their own rules is a good idea,” says Brian Graff, CEO of the American Retirement Association, an industry group for retirement professionals. “I’d like to think that more people would recognize that a lack of uniformity is going to create chaos and inefficiency,”

What do you think?

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