FSI Advocacy Report

To help you stay up-to date on the Financial Services Institute’s (FSI) advocacy efforts, we have developed the Advocacy Report, updated in real-time. You have access to this report because you are a member of FSI. The report tracks items that we are working on, providing you with the status of our work. If you have input you wish to share, please click the “Talk to Us” button under each topic to send your feedback to the appropriate member of the FSI Advocacy Team.

Top Issues

DEFINITION OF THE TERM “FIDUCIARY” UNDER THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974

On April 14, 2015, the U.S. Department of Labor (DOL) released its long-awaited rule proposal in its effort to redefine the term “fiduciary.” This is latest attempt by DOL to replace its longstanding regulation defining the circumstances in which investment advice confers “fiduciary” status under ERISA, with a new, more expansive definition. In response to industry and Congressional pressure, the DOL announced on September 19, 2011, that it had withdrawn its original 2010 proposal redefining the term fiduciary.

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FINRA ELDER ABUSE PROPOSAL

On October 14th, FINRA released Regulatory Notice 15-37 to address abuse of older investors and those with diminished capacity. The notice would affect two FINRA rules. First, FINRA is proposing to amend Rule 4512 to require firms to make reasonable efforts to obtain the name of and contact information for a trusted contact person upon the opening of a non-institutional customer’s account. In its notice, FINRA states that a firm would not need to attempt to obtain the name of and contact information for a trusted contact person for currently existing accounts until such time as the firm updates the information. FINRA would also require that firm notify a client in writing, it can be electronic, that they may contact the designated third party if the firm suspects elder abuse. The Notice also calls for the creation of FINRA Rule 2165, which would allow a “qualified employee” to place a temporary hold on a client’s account if there is a suspicion of elder abuse. The rule would require the firm to contact the designated trust contact within two business day and for the firm to undertake an internal review of the facts. If the trusted person is the one who is committing the fraud, FINRA allows for a firm to contact an immediate family member. Proposed Rule 2165 creates no obligation to withhold disbursement of funds or securities where financial exploitation may be occurring. Accordingly, FINRA states that Supplementary Material to proposed Rule 2165 would expressly state that the rule provides firms with a safe harbor when they exercise discretion in placing temporary holds on disbursements of funds or securities from the account of a specified adult under the circumstances denoted in the rule. In other words this would not create a duty on firms and advisers to report elder abuse and therefore is a permissive reporting standard. Any hold on the account would expire after 15 business days and can be extended for an additional 15 days for a total hold of 30 days (10 more than NASAA’s). There are also record retention policies required under the new rule.

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Cybersecurity – OCIE Risk Alert

The SEC’s Office of Compliance Inspections and Examinations (OCIE) provided information on the areas of focus for the second round of OCIE’s cybersecurity examinations.

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New Jersey State-Run Retirement Bill

Assemblyman Vincent Prieto (D) introduced A.B. 4275 and Senator Stephen Sweeney (D) introduced its companion bill S.B. 2831. Both bills would create the New Jersey Secure Choice Savings Board and directs the Board to administer a state-run retirement plan for private sector employees. Employers would be forced to automatically enroll their employees in the state-run plan if they do not provide access to a qualified retirement plan.

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MASSACHUSETTS FIDUCIARY DUTY LEGISLATION

Earlier this year, Massachusetts Representative introduced H.B. 3248 in the Massachusetts General Court. This legislation would investment advisors and broker-dealers operating in the state to provide a form to clients indicating whether they are acting as investment advisor or broker-dealers along with a brief description of what each role entails.

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Congress

Fiduciary Definition

On April 14, 2015, the U.S. Department of Labor (DOL) released its long-awaited rule proposal in its effort to redefine the term “fiduciary” for purposes of the Employee Retirement Income Security Act of 1974 (ERISA) and section 4975 of the Internal Revenue Code of 1986. The proposal would broaden the instances under which an advisor would be considered a fiduciary. The proposal, as currently written, is unworkable and could have the real-world effect of banning the earning of commissions on IRA advice. FSI will continue to fight this proposal in every way possible, including through legislative avenues.

 

Small Business

FSI believes that this legislation will help facilitate small business capital formation and allow business owners to effectively voice concerns about critical issues such as burdensome and redundant regulation and increased compliance costs.

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Independent Contractor

The classification of workers as independent contractors is an issue of great interest on Capitol Hill in particular, and FSI has fought for years to prevent independent financial advisors from being forced to become employees of their Broker-Dealers.

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Prevention of Elder Abuse

FSI and its member firms are committed to the prevention elder financial abuse. FSI’s member firms and financial advisors commonly deal with clients who may fall victim to elder financial abuse.

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Arbitration

FSI continues to fight against any effort to prevent broker-dealers and invest advisors from entering into agreements with their clients that would prevent unnecessary litigation and instead allow the parties to settle any disagreement through arbitration or other similar dispute resolution avenues.

 

Cybersecurity

FSI is continuously monitoring bills related to different aspects of cybersecurity to ensure that our members will be able to continue serving their clients in a safe and secure electronic environment without having to fear overly burdensome regulations, unnecessary private lawsuits, and overreaching enforcement actions.

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Employment Issues

FSI is constantly vigilant of any proposals that would change the employment and workplace dynamics of broker-dealers, independent financial advisors, and their employees.

 

Regulatory Reform

FSI is always looking for ways to improve the regulatory environment so as to ensure that our members are able to operate in a regulatory environment that is fair and balanced.

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Retirement Issues

FSI is always monitoring legislative proposals with regards to retirement issues and working with legislators to ensure that these proposals continue to enable our members to help Americans plan for their financial future.

 

SIPC

FSI is constantly on the lookout for changes to how the Securities Investor Protection Corporation operates and what effect any proposed changes would have on our members.

Tax Issues

FSI is working with legislators to ensure that any changes to our nation’s tax code take into account the important work that our members do in helping Americans plan for their financial futures.

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SEC, FINRA, MSRB and DOL

MSRB PROPOSED PRICING DISCLOSURE RULE

On September 24, MSRB filed a request for comment on a proposed rule to require the disclosure of the mark-up or mark-down on municipal bond transactions. The disclosure would apply when the broker-dealer traded in the same security on the same side as the customer within two hours of the customer trade. The proposed rule would also require the inclusion of a security-specific link to the CUSIP’s page on EMMA as well as the disclosure of the time of execution to the nearest minute.

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U.S Treasury myRA Request for Comment

Several years ago the President proposed a retirement savings mechanism called myRA. This program allows individuals to purchase an interest in a US savings bond. When the principal amount of the bond hits $15,000 the myRA account is to be transferred from the Treasury Department to a private sector Roth IRA account provider. The Treasury Department is requesting comment on this transfer process, particularly as it concerns default transfers (i.e. situations where the myRA account holder has not specified a particular firm it would like to open the Roth IRA with). In this request Treasury asks a series of questions.

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FINRA PROPOSED RULE ON BROKERCHECK HYPERLINKS

On May 27, FINRA filed a proposed rule change with the SEC to require that an internet hyperlink to BrokerCheck appear on member websites. This is the third time that FINRA has either sought SEC approval for such a rule or requested comment on this type of proposal. Earlier proposals would have required a “prominent description” and individualized “deep link” to firms’ and advisors’ FINRA BrokerCheck reports on websites, social media pages, and “any comparable internet presence.”

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FINRA RETROSPECTIVE RULE REVIEW COMMUNICATIONS WITH THE PUBLIC RULES

FINRA recently published Regulatory Notice 15-16, requesting comment on proposed amendments to rules governing communications with the public. The proposed changes would revise many of the filing, content, and disclosure requirements in FINRA’s rules. The proposed changes were a result of a retrospective rule review launched by FINRA in April of 2014 where FSI and others provided input on pain points currently experienced by the industry and suggested changes. In addition to the proposed changes, FINRA also released guidance to clarify existing ambiguities in the communications rules. These changes are thorough and important, and FSI applauds FINRA for making these changes.

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FINRA Proposal for Web-Based Delivery of Continuing Education Materials

On June 4, 2015, FINRA filed proposed rule 015-15 with the Securities and Exchange Commission. The proposed rule would amend FINRA Rule 1250 to allow for web-based delivery for registered persons to complete continuing education (CE) requirements. Currently, registered representatives are required to complete their CE requirements at a testing center. The web-based system will provide a 120 day window to registered persons complete CE requirements at any location of their choice, including their home or office. Registered persons would only need to enter the last digits of their social security number and date of birth to be matched to their CRD numbers for authentication. This information will be encrypted and will not be stored in the system. Finally the web-based system would result in a reduction in fees from $100 to $55.

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FINRA Qualifying Exam Concept Release

FINRA has issued a Concept Release for public comment to alter the current qualifying examination system for representative level exams. FINRA proposed to create a new exam, the Securities Industry Essential Exam (SIE), that all representatives will be required to pass. The SIE will test basic securities industry concepts that are currently included on each separate representative-level exam. The job-specific exams will now be reconfigured to only test individuals on job-specific concepts. The SIE result will be valid for four years. Individuals do not need to be an associated person of a FINRA member to sit for the SIE. They must be an associated person to sit for a job-specific exam.

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Sweeps and Other Letters

FSI has been tracking sweeps and other letters relevant to members. What follows is a list of recent sweeps and other letters relevant to independent firms.

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Legislative Issues

FSI’s Interactive State Advocacy Map

To view FSI’s current advocacy efforts in your state, check out the new interactive map in the Advocacy Action Center. Updates will be made on an ongoing basis, so check back regularly for the latest developments in your state. We welcome your input via emailregarding issues going on in your home state that you think will seriously affect your business and your clients.

Elder Abuse

Elder abuse issues at the state level primarily consist of reporting and disclosure concerns, increased penalties for elder abuse, and financial literacy specifically aimed at inoculating the elderly against financial predation. First, there is confusion and uncertainty in many states about how an advisor may react when aware that an elderly client is being financially victimized. It is often unclear whether the advisor can report their knowledge to someone, who that person or authority might be if they can, and whether such disclosure conflicts with privacy laws at the state and/or federal level. Second, many states have introduced bills that seek to strengthen penalties associated with financial abuse of the elderly. Where appropriate, FSI expresses support for these bills. Finally, several states have introduced legislation seeking to create financial literacy programs specifically targeted at elders. These type of bills typically express recognition of the fact that the elderly are much more likely to become victims of financial abuse or fraud and seek to mitigate that susceptibility through financial education. Where appropriate, FSI also expresses support for those bills.  Please visit FSI’s Elder Abuse resources at http://www.financialservices.org/elderabuse.

 

State Retirement Plans for Private Employers and Employees

Typically, state retirement legislation seeks to create retirement plans that are set up and administered by the state government. Although these bills seek to encourage those unprepared for retirement to start saving, they also unfairly compete with the private marketplace that currently exists. Further, these plans cannot be individually-tailored to the needs of the individual, may be poorly managed, and may be more expensive to administer than legislators anticipate due to potential ERISA implications.

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Financial Literacy

FSI is focused on facilitating our membership’s desire to promote financial literacy around the country. FSI is a partner of the national Jump$tart Coalition, works to connect members with their local legislators, and helps to organize financial literacy-related events where appropriate. FSI is also using financial literacy promotion as a positive way to build stronger relationships with key legislators at the state and federal level.

Intrastate Stock Exchanges

These bills seek to create a secondary market for intrastate securities. Although this type of exchange would create liquidity for in-state crowdfunded offerings, it also has the potential to exacerbate the problem in the event of a fraudulent offering.

Financial Transaction Taxes

Several states have introduced legislation or currently have legislation on the books that impose gross receipts taxes on professional services in the state. Typically, “investment counseling” is included as a taxable professional service within these bills or laws. These types of taxes increase the cost of financial services to the consumers and price our members’ invaluable services out of reach of the main street investors who need them most.

Independent Contractor

The Independent Broker-Dealer business model relies on its registered representatives being classified as independent contractors under federal and state law for tax purposes. Without that designation, advisors would no longer have the independence that is so attractive to their clients. Several states have introduced bills that modify the definition of independent contractor or employee in such a way that many legitimate independent contractors would be reclassified as employees. FSI supports the IRS’ 20-factor worker classification test at the federal level and typically seeks to ensure that any definition of independent contractor follows those principles at the state level.

State Regulatory Issues

FSI’s Interactive State Advocacy Map

To view FSI’s current advocacy efforts in your state, check out the new interactive map in the Advocacy Action Center. Updates will be made on an ongoing basis, so check back regularly for the latest developments in your state. We welcome your input via emailregarding issues going on in your home state that you think will seriously affect your business and your clients.

 

NASAA’s Broker-Dealer Fee Survey

Earlier this year, NASAA’s Broker-Dealer Section released of survey of broker-dealer fee disclosure language. The survey highlighted many of the inconsistencies of in broker-dealer fee language and the placement of that language. The survey recommended the formation of a task force to work together to find common sense solutions to this issue.

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NASAA Elder Abuse Prevention Model Legislation

On September 29, NASAA’s Board of Directors released its Model Legislation. The legislation was a result of the work done by NASAA’s Committee on Senior Investors and Diminished Capacity and its Advisory Council. The Advisory Council comprised of industry representatives, including FSI.

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NASAA REIT Proposal

On September 17th, FSI met with the NASAA DPP Project Group regarding their proposal to update NASAA’s REIT Guidelines.· Among the changes NASAA would create a concentration limit in illiquid DPP programs not to exceed 10% of a participant’s liquid net worth. Liquid net worth meaning cash, cash equivalents and readily marketable securities. It would create a modified accredited investor standard, which would raise the concentration limit of a participant who has earned income in excess of $200,000 or a couple that has earned in excess of $300,000 over the two most recent years.

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Sweeps and Other Letters

FSI has been tracking sweeps and other letters relevant to members coming from state regulators. What follows is a list of recent sweeps and other letters relevant to independent firms.

  • New Jersey: Non-Traded Securities Information Request
  • Illinois: Variable Annuity Transactions Inquiry
  • Washington: Client Username and Password Access Inquiry
  • Illinois Request on Inactive Accounts and Custodial Fees
  • Massachusetts Senior Investor Sales Practice Survey

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Member Feedback

We welcome feedback from our members about how different legislation and regulation is affecting your business and your clients. If you have had additional feedback, we invite your to share your experiences and views.

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