The North American Securities Administrators Association (“NASAA”) issued a legislative agenda highlighting the policy priorities of state securities regulators for the 114th Congress.
NASAA’s legislative agenda includes four overarching principles:
Expand and Strengthen Protections for Senior Investors:
o Establish Senior Investor Protection Partnership Grant Program
o Reduce Reliance on Payment Systems Most Conducive to Fraud
o Adopt Diminished Capacity Legislation
Promote Investor Confidence through Effective Regulation:
o SEC Examination of Federally Registered Investment Advisers
o Sustained Federal-State Coordination Regarding Cybersecurity Challenges
o Law Enforcement Access to Information Stored on ISPs
o Deterring Fraud with Effective Civil Penalties
Promote a Fair and Transparent Marketplace for Retail Investors:
o Uniform Fiduciary Standard for Financial Professionals
o Information Disparities and Conflicts-of-Interest That Harm Ordinary Investors
o Equitable Recourse and Mandatory Arbitration Contracts
o Standardized Disclosure of Broker-Dealer Fees
Facilitate Capital Formation through Federal-State Partnerships:
o State Leadership in Innovation to Promote Capital Formation
o Implementation of the JOBS Act Consistent with Congressional Intent
o Review the Accredited Investor Definition
The NASAA report provides more detail about each of these issues.
Lofchie Comment: Two of NASAA’s proposals seem to have caught the public’s attention. They are not well justified. First, a “uniform fiduciary standard” for broker-dealers and investment advisers only makes sense if both types of entities are holding themselves out as providing the same services. If broker-dealers do not present themselves as providing investment advice that takes account of an investor’s overall financial situation, and do not charge fees that are as high as those of investment advisers, then it does not make sense to hold them to the same level of substantive requirements. Moving to a regulatory scheme in which a broker-dealer who charges a few cents a share for execution is expected to provide the same level of investment advice as an advisor who charges 1% of assets under management is a mistake, and compromises the economics behind being a full-service broker-dealer to retail investors. Under a “uniform fiduciary standard” retail investors will have to either do without talking to a broker or pay a substantial amount to an investment adviser (the economics of which may not really work for a small investor).
Second, the notion that high-frequency traders injure retail investors seems a matter of unsupported popular belief. If high-frequency traders benefit against any type of investor, then it is more likely that institutional investors trading large volumes of stock will be outrun by high-frequency traders.