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ASA Submits Comments to NASAA on Broker-Dealer Model Rule



WASHINGTON, DC – The American Securities Association (ASA) today submitted a comment letter to the North American Securities Administrators Association Inc. (NASAA) on proposed revisions to NASAA’s model rule on Business Practices Rule of broker-dealers.

 

“ASA urges NASAA to drop this ill-conceived policy because it lacks merit, economic justification, compassion for low-and -middle-income Americans, and any legal authority,” said ASA President & CEO Chris Iacovella. “Over the past decade, NASAA has morphed from a conference of state regulators into an activist lobbying organization that aligns itself with special interests at the expense of the actual needs of investors. The SEC re-asserted its national authority over the broker-dealer industry after a careful and deliberate process when it adopted Regulation Best Interest, and NASAA's march to undermine this regulation in favor of a patchwork of inconsistent state regulations would severely impact retail investors and increase the cost of investing for millions of Americans.”

 

In the letter to NASAA, ASA outlined numerous concerns associated with the Proposal and made specific comments in the letter which are highlighted below:

 

I. General Comments. Instead of prioritizing the well-being of investors, NASAA used its finite resources on futile attempts to push regulations that have been rejected by bipartisan coalitions in Congress and the U.S. Securities and Exchange Commission (SEC). NASAA’s calculated and pervasive assault on the SEC’s nationally recognized Regulation Best Interest (Reg BI) standard since it was established in 2019. This is harmful to investors because it undermines the existing regulatory regime, and carelessly dismisses Reg BI which is the prudential standard of conduct for financial professionals.

 

II. State Regulators Do Not Have the Authority to Rewrite Reg. BI. The National Securities Markets Improvement Act of 1996 (NSMIA) explicitly preempts state regulators from adopting the types of mandates that are contemplated in the Proposal. Specifically, NSMIA contains express prohibitions against states adopting recordkeeping mandates that go beyond federal law and regulation. There is little question that if a state were to adopt the proposed NASAA revisions, brokers in that state would face new recordkeeping obligations that are not already contained in Reg BI or other SEC regulations. Given the high likelihood that the courts will find any further state effort to subvert Reg BI will violate federal law, NASAA and individual states should be prepared to defend the rulemaking in legal action.

 

III. If Adopted, the Proposal Would Have the Same Negative Effect on Investors as the 2016 DOL Fiduciary Rule. Surveys and reports found that financial advisors would limit or exit the market for small balance individual retirement accounts. A 2021 report from the Hispanic Leadership Fund found that if the 2016 DOL rule were reinstated, the retirement savings of 2.7 million individuals with incomes below $100,000 would be reduced by $140 billion over ten years. The rule would also contribute to a roughly 20% increase in the wealth gap for Black and Hispanic Americans.

 

IV. The Proposal is Unduly Restrictive on Broker-Dealers. The Proposal states that a “broker-dealer or agent will be presumed to have placed its financial interest ahead of the interest of the retail customer where the broker-dealer or agent…rewards the broker-dealer or agent with additional cash or non-cash compensation beyond the sales commission as the result of that recommendation.” In other words, NASAA is proposing to ban all types of compensation for brokers aside from trading commissions.

 

V. NASAA Has Not Conducted Any Economic or Investor Impact Analysis to Support the Proposal. The Proposal is not accompanied by any kind of economic analysis to support the new restrictions. Unlike federal regulators – which are subject to the requirements of the Administrative Procedure Act – NASAA appears to think there is no need to commission a cost-benefit analysis to support its revised “standards.”

 

ASA’s full comment letter can be read here.

 

Additionally, ASA joined with six trade associations, including with SIFMA, Insured Retirement Institute, and the Institute for Portfolio Alternatives, in submitting a joint comment letter to NASAA on the proposed Broker-Dealer Model Rule.

 

 

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About the American Securities Association

 

American Securities Association, based in Washington, DC, represents the retail and institutional capital markets interests of regional financial services firms who provide Main Street businesses with access to capital and advise hardworking Americans how to create and preserve wealth. ASA’s mission is to promote trust and confidence among investors, facilitate capital formation, and support efficient and competitively balanced capital markets. This mission advances financial independence, stimulates job creation, and increases prosperity. The ASA has a geographically diverse membership of almost one hundred members that spans the Heartland, Southwest, Southeast, Atlantic, and Pacific Northwest regions of the United States.

 

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