New Jersey is proposing legislation imposing a fiduciary duty upon Broker-Dealers, Agents, Investment Advisers, and Investment Adviser Representatives.
Mullooly Asset Management stands in support of this proposed legislation. We hope the legislation passes. Then a fiduciary standard of care would become law in the state of New Jersey. But we’re a little curious how this will all play out. The Department of Labor burned a lot of calories trying to impose a fiduciary standard of care in recent years. The brokerage community worked hard to defeat this proposal from the DOL. We’re scratching our heads how this will be implemented on a state level and applied uniformly.
You can read the entire proposal here.
Important passage you should read
I have pasted an important point from the proposal below. Please take a moment to read and grasp what is being said.
We will never grow tired of saying this to investors! The state shared that:
“…retail investors do not understand the differences between investment advisers and broker-dealers or the standards of care applicable to broker-dealers and investment advisers. Many find the different standards of care confusing and are uncertain about the meaning of the various titles and designations, such as “money-manager,” “wealth-manager,” “financial advisor,” etc., used by investment advisers and broker-dealers. Many expect that both investment advisers and broker-dealers are obligated to act in the investors’ best interests.
Moreover, many retail investors expect, and incorrectly believe, that financial professionals, including broker-dealers, are acting in a fiduciary type relationship of trust. In addition, because many broker-dealers are also investment advisers, this compounds the problem of investor confusion. These dual registrants “switch hats” when dealing with the same customers, thereby blurring the lines between investment advisory services and sales services.”
(emphasis added)
The reference to “switch hats” above from the state is an important one. There are many folks in our line of work who wear “two hats.” They are employed by a brokerage firm and also serve as an investment adviser. So they can generate commissions AND generate fees.
It is difficult to tell whether these folks are making recommendations in the clients’ best interest or generating a fee. If these folks truly have the clients’ best interest in mind, why not work on a fee-only basis and be a fiduciary in every way possible?
There has been previous attempts (via the SEC) for legislation. The Bureau believes that the (proposed) SEC Regulation Best Interest does not provide sufficient protections for New Jersey investors. The New Jersey proposal will be open for your comments until June 14, 2019. You can send an email to DCAProposal@dca.lps.state.nj.us.
After the comment period ends, the state may then modify the proposal, or adopt it as is.