From Capitol Hill to Main Street: The Importance of State-Level Advocacy

Our advocacy activities on your behalf at the federal level have been intense this year,and the stakes for the industry are high.

At the same time, we continue to see a number of developments in the states, and state issues can have a massive impact on our members as well. That’s why we continue to advocate for you, your business and your clients in statehouses nationwide.

So far this year, we have taken on ESG disclosure requirements, independent contractor rules and well-intentioned but flawed legislation intended to thwart deceptive business practices. Meanwhile, we’ve also worked hard to support measures that protect vulnerable investors and boost financial literacy programs. Let’s take a closer look.

ESG Disclosures

FSI does not have a position on the merits of ESG investing. That’s for advisors and their clients to decide. However, we do have strong convictions when rules or legislation create burdensome administrative requirements for the industry.

Last year, Missouri adopted a rule that compels advisors to provide clients with notice and secure written consent when ESG or nonfinancial objectives are considered. Advisors must go through this process at the outset of a relationship with a client and every three years after that.

At the time, we advocated strongly against the rule. We told lawmakers that it offered limited investor protections while introducing an added – and needless – layer of complexity for firms and advisors.

Because of the significant implications of the Missouri rule, FSI is now supporting a lawsuit to block it. Twenty-eight years ago, Congress limited states’ ability to regulate national markets. We believe Missouri has overstepped those bounds in adopting the rule.

We had more success in achieving common-sense modifications in Wyoming, where the Secretary of State proposed an ESG rule like Missouri’s. In the end, the governor modified it, removing the affirmative client consent requirement and replacing the extra paperwork with a simple disclosure, thanks, in part, to our advocacy. We also organized grassroots efforts by members in Kentucky and Tennessee that helped defeat similar ESG reporting proposals in those states.

Independent Contractor Rule

Even as the Department of Labor’s independent contractor rule continues to cause headaches for the industry, some states, including Kentucky and Rhode Island, have pursued proposals that could have called financial advisors’ independent status into question. However, we mobilized quickly and joined other organizations to oppose those efforts. In the end, neither state advanced the legislation.

In the future, whenever – and wherever – this issue comes up, we will act fast, engaging regulators, lawmakers and other policymakers to explain the negative consequences of forcing independent financial advisors to reclassify as employees of their firms.

Senior Protection

FSI has long encouraged states to enact legislation based on the North American Securities Administrators Association’s (NASAA) Model Rule to protect seniors and vulnerable investors from financial exploitation. We believe every state should have “report and hold” legislation on the books, which allows advisors or firms that suspect exploitation to hold transactions and report them to Adult Protective Services and securities regulators.

To date, 37 states have done so, including Kansas this year. We will continue to seek enhanced protections for vulnerable investors until all 50 states pass important safeguards like this.

Deceptive Practices Legislation

New York legislators pursued a bill to beef up protections in the state against businesses that employ “unfair and deceptive acts and practices.” While well-intentioned, our concern was that the measure fails to adequately define what constitutes an “unfair” or “abusive” act or practice, leaving those terms up for broad interpretation.

Because of that, we believed the bill would invite plaintiffs to file speculative lawsuits against business owners in New York, including our members. In response, we unleashed an aggressive advocacy campaign against it. As part of that effort, we rallied our New York members, asking them to contact their state assembly members, senators and the governor to let them know the proposal would pose unnecessary risks to their businesses.

In response to our efforts and arguments that New York and federal law already provide ample protections for investors, an exemption for broker-dealers and investment advisers was added to the legislation. Ultimately, the bill failed when the legislature adjourned without the Senate and Assembly agreeing on the proposal, giving us an important advocacy victory in the state.

Financial Literacy Initiatives

For years, we have been committed to improving financial literacy nationwide, starting in the schools. Only about half of the states require some form of financial education. We will continue our efforts to ensure all states include basic personal finance in their curriculum. We’ve made good progress over the years, with many lawmakers being receptive to our message. But there is more work to do.

Looking Forward

We will remain highly engaged at all levels as we look to the rest of the year. Indeed, whether our advocacy is focused on a federal agency or a state lawmaker, our goal is to push for outcomes that are fair to our members and consistent with our mission of ensuring that all individuals have access to competent and affordable financial advice, products and services.