FSI Cautions NASAA on Conflicting with Reg BI 

December 5, 2023

The Financial Services Institute (FSI) submitted a comment letter to the North American Securities Administrators Association’s (NASAA) Model Rule on Dishonest or Unethical Business Practices of Broker-Dealers and Agents. The comment letter highlights concerns regarding conflicts between the Proposed Rule’s requirements and those of the SEC’s Regulation Best Interest and the National Association of Insurance Commissioners’ (NAIC) Suitability in Annuity Transactions Model Regulation. In addition, as an organization committed to providing Main Street Americans with access to professional financial advice, products and services, FSI is concerned about the Proposed Rule’s anticipated negative impact on Main Street. FSI has requested that the rule not be adopted.

Click here to read the comment letter. 

“We appreciate the opportunity to weigh in on NASAA’s proposal and share our insights on its impact on the independent financial advice industry and the Main Street Americans our members serve,” said FSI President and CEO Dale Brown. “Our members are proud to offer affordable financial advice, products, and services that help millions of Main Street Investors. Despite NASAA’s stated intent to reflect Reg BI and protect investors, the Proposed Rule conflicts with established national standards, which would result in hard-working Americans, particularly those with lower incomes and less savings, losing access to professional, affordable financial advice and services. The proposed rule is unnecessary and could cause significant unintended consequences for our members, their clients and the industry. We welcome the opportunity to further engage with NASAA and seek solutions on this rule proposal.” 

The comment letter highlights several key points and issues, including:  

  • By imposing compliance and financial burdens, the proposed rule could negatively impact independent financial advisors’ ability to provide financial advice, services, and products to Main Street. 
  • Substantial costs and burdens are mainly caused by the deviation from national standards presented in the proposal. 
  • By offering eight optional provisions that states can adopt The Proposed Rule undermines regulatory uniformity encourages increased state regulation.  
  • The financial services industry could face dual federal-state rules governing the same business activity. 
  • The proposed rule includes all prospective customers and clients, expanding its scope far beyond SEC guidance. The expansive scope was rejected by the SEC during the Reg BI comment process. The proposed rule presents significant legal and policy weaknesses, including preemption issues for broker-dealers and their registered representatives. 
  • States are prohibited from requiring broker-dealers to make or keep records that differ from or are in addition to those required under federal rules. If the states adopt the proposal, it could cause express preemption challenges.  
  • The Proposed Rule’s Revision Set #2 provides eight items that could cause states to codify SEC guidance into state law, conflicting with Reg BI. 
  • The uncertainty created by the conflicting NASAA, SEC and NAIC requirements does not benefit investors already facing confusion and the possible lack of access to financial advice, products and services.