Dear IPA Members and Friends,
We write to inform you of a NASAA initiative impacting our industry. At the NASAA Fall Conference on September 10, 2019, NASAA’s President Chris Gerold (New Jersey) announced the creation of a board-level Regulation Best Interest Implementation Committee chaired by Andrea Seidt (Ohio). In his speech, Mr. Gerold stated “Regulation Best Interest promised to better protect investors and align their expectations for the services and advice they receive from broker-dealers. NASAA will assess the rule’s implementation to track its progress toward delivering on that promise with tangible results for investors. I thank Ohio Securities Commissioner Andrea Seidt for leading NASAA’s new Regulation Best Interest Implementation Committee and look forward to the committee’s efforts to assist NASAA members in their interpretation and implementation of this regulation.”
The IPA was informed late last week that the NASAA Regulation Best Interest Committee has prepared Phase 1 of the committee’s work – an “Industry Questionnaire” consisting of 69 online questions for broker-dealer and investment adviser state registrants. The survey asks a range of questions, including with regard to firm business models, compensation and conflicts policies, procedures and practices, E&O insurance, complex products, and more. The NASAA Regulation Best Interest Committee will be asking individual states to send this survey out to their BD and RIA registrants no later than February 14, 2020, with a two-week deadline for completion. It is our understanding that response to the survey may be mandatory under existing state investigative authority.
The stated goal of Phase 1 of the inquiry is to create a “baseline” report on operations prior to the effective date of Regulation Best Interest, particularly with respect to complex products (defined therein as private securities, non-traded REITs, leveraged or inverse ETFs, and variable annuities). Phase 2 will likely consist of an on-site exam for registrants that will be conducted within a few months after the Regulation Best Interest implementation date (June 30, 2020) to assess progress and changes from the Phase 1 baseline report. We understand the Phase 2 sweep may be conducted as part of NASAA’s bi-yearly coordinated exam sweeps.
NASAA has indicated that a subgroup within the NASAA Regulation Best Interest Committee, chaired by Tanya Solov (Illinois), has been tasked with reviewing NASAA model suitability standards, and will be surveying individual state securities regulators on their own suitability rules and feedback on a new NASAA model rule to replace current suitability rules. She stated that NASAA members will be determining whether to adopt suitability standards that align with Regulation Best Interest or move toward a fiduciary standard, and that no decision had been made.
The IPA is actively monitoring the rollout of this industry questionnaire and larger NASAA initiative and is in close dialogue with our industry partners. We ask IPA members that receive the survey to please share this with us, whether it was submitted on a voluntary or mandatory basis, and any questions or concerns you may have.
SVP, Government Affairs and General Counsel
Institute for Portfolio Alternatives