Core Advocacy Priorities to Protect Access to Financial Advice

June 22, 2020

The unprecedented wave of uncertainty we are all living through as America grapples with the coronavirus pandemic—including temporary business closures, job losses and severe market volatility—has highlighted the incredibly important role independent financial advisors play in the lives of their clients.

During times like these, investors who may have spent decades saving and preparing for retirement need a financial professional’s steady voice to reassure them and help them get back on track. Younger investors, whether they’re established professionals or just starting their careers, need clear guidance and partnership as well.

Independent financial advisors—many of whom have powerful experience in navigating turbulent times after guiding clients through the 2008 financial crisis—are the ideal professionals to serve in this vital and heroic capacity today.

For all these reasons, we have one message for legislators and regulators, both in the states and at the federal level: Now more than ever, we must not lose sight of the importance of protecting investors’ access to financial advice.

One crucial element of preserving this access is ensuring that states recognize financial services as part of the nation’s critical infrastructure, consistent with the U.S. Department of Homeland Security’s guidance. We have reached out to the nation’s Governors urging that any ongoing “stay at home” orders reflect the federal guidance and do not impede essential capital market functions. This will help advisors and their teams perform the limited—but highly important—client service functions that can only be completed on-site at their offices.

At the national level, the following are some key initiatives we are focused on to help preserve access at this difficult time:

1. Ensuring the success of Regulation Best Interest

We cannot overstate how vital it is to have a clear, strong, and consistent set of guidelines for all financial services firms and advisors. The disclosure and conflict mitigation measures in the SEC’s new Regulation Best Interest (Reg BI) represent a major step forward in reducing confusion and strengthening protections for investors while also enabling them to continue receiving guidance according to the business model that works best for them.

We have committed significant resources to ensuring that our member firms are positioned to successfully implement and comply with Reg BI, including hosting Reg BI Workshops at our in-person events prior to the coronavirus outbreak.

In light of the challenges posed by the COVID-19 pandemic, we believe the best way to keep financial firms and advisors on track for the most successful possible transition into the Reg BI era is for the SEC to provide our industry with temporary regulatory relief. We have maintained continuous dialogue with the commission to push for greater flexibility with electronic delivery of client documents, requirements that personnel be present in person for branch examinations, remote training and more, in order to reduce our members’ overall regulatory burden and enable them to focus more of their time and resources on complying with Reg BI.

2. Protecting independent advisors’ business models

Educating lawmakers and regulators on the need to preserve independent contractor status for the independent advisors in our industry has long been a central focus for us. Empowering advisors to operate their own businesses gives them the autonomy and flexibility to serve their clients appropriately, and forms one of the key factors in our industry’s underlying economic model.

Unfortunately, advisors continue to face challenges to their independent contractor status, especially at the state level. We were pleased to secure an exemption for advisors in California’s sweeping AB 5, which imposed strict new requirements for classifying workers as contractors starting this year. With similar measures under consideration in other states, however, it’s clear there is still much work to do in educating lawmakers about unintended consequences of such measures.

In order to guide Main Street American investors through this anxious time, advisors need a basic level of stability when it comes to their own practices. Throwing the viability of their businesses into doubt by potentially re-classifying advisors as employees would be exactly the wrong move in today’s uncertain environment.

3. Combatting regulation by enforcement

Broadly speaking, ‘regulation by enforcement’ refers to enforcement actions that are based solely on staff guidance or create new requirements without transparent rulemaking processes, including notice to stakeholders and reasonable provisions for comment.

In more colloquial terms, it means changing the rules in the middle of the game. And, as investors try to deal with disruptions to their long-term financial plans, this unfortunate practice threatens to paralyze firms and advisors and deprive their clients of timely guidance.

We are committed to pushing back against this phenomenon in order to avoid a repeat of harmful instances like the SEC’s recent share class disclosure initiative, which penalized firms for abiding by practices on share class recommendations previously deemed compliant with applicable rules.

Now more than ever, we must not lose sight of the importance of protecting investors’ access to financial advice.

As part of our efforts to fight back against this unlawful and disruptive trend, we and a coalition of concerned industry associations and public interest groups recently filed a petition for rulemaking with the SEC. The petition makes a common-sense request that the SEC initiate a transparent rulemaking process to clarify its disclosure standards regarding advisor compensation through 12b-1 fees for recommending certain mutual fund share classes.

Just as importantly, it makes a clear and compelling case as to why the SEC and other regulators should turn back immediately from their harmful—yet growing—reliance on staff ‘guidance’ and enforcement to retroactively enforce arbitrary standards not developed through lawful rulemaking channels.

Throughout this year and beyond, we will continue to monitor regulatory initiatives like FINRA’s new examination program to ensure they adhere to stated goals without driving increased instances of regulation by enforcement.

Independent financial advisors are part of the critical professional infrastructure that will help Main Street American investors cope with our current period of profound uncertainty and get our nation back on its feet. In order for Americans to benefit from their expertise and guidance, it is incumbent on our lawmakers and regulators to protect investors’ access to professional financial advice—just as it is incumbent upon us to continue to fight for it.

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