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Advocacy in action blog

Proposed changes to the North American Securities Administrators Association's (NASAA's) Model Rule on Dishonest and Unethical Business Practices of Broker-Dealers and Agents would conflict with existing, effective consumer-protection regulations and cause unintended harm to investors. NAIFA urges NASAA to reconsider the proposed revisions. 

The SEC's Regulation Best Interest (Reg BI) is a nationwide standard requiring financial professionals to work in the best interests of their clients. It has been implemented and is being enforced. Similarly, the National Association of Insurance Commissioners' (NAIC's) model regulation for annuity transactions protects consumers' best interests and has been adopted by 40 states. Broker-dealers made significant and costly changes to their practices to comply with Reg BI and the NAIC model. Together, Reg BI and the NAIC model are providing strong consumer protections.

Unfortunately, the NASAA proposal conflicts with Reg BI and the NAIC model in several ways:

  • The proposal expands the definition of "recommendation" beyond the long-established definition used by the SEC and other regulators, including FINRA.
  • The proposal rewrites Reg BI's Conflicts of Interest Obligation and creates confusion about how conflicts may be resolved.
  • The proposal, incorrectly and in conflict with Reg BI, assumes any compensation beyond 12b-1 fees and sales commissions inherently puts the financial professional's interests ahead of consumers'.
  • The proposal's attempt to "simplify" Reg BI's "reasonably available alternative" test actually conflicts with it. While the SEC rule requires a robust analysis of a client's needs, the NASAA proposal requires assessments of products and strategies based on their lower cost and risk. Reg BI specifically prohibits financial professionals from making recommendations based solely on cost and risk without considering investors' other needs.

NAIFA, along with a coalition of industry organizations, has sent a letter to NASAA asking it to reject the proposal as it is currently written. If enacted, the proposal would create confusion and would limit consumer's choices of investment products and services. NAIFA similarly opposes the U.S. Department of Labor's fiduciary rule proposal, which would also reduce consumer choices and access to financial products, services, and advice.

It is vital to the financial security of Americans that they have access to professional services and can choose from multiple service models to best serve their interests. Unfortunately, the adoption of the NASAA and DOL proposals would bring opposite results. NAIFA will continue working with regulators and lawmakers to promote policies that encourage financial security for all Americans. 

NAIFA works with groups like NASAA, NAIC, and the National Council of Insurance Legislators (NCOIL), as part of its interstate advocacy program to help shape model laws and regulations, before they are released and enacted, to benefit advisors and consumers.