National Association of Insurance and Financial Advisors

NAIFA Concerned About Unintended Consequences of Proposed Fiduciary in Maryland Bill

The National Association of Insurance and Financial Advisors (NAIFA) joins its Maryland chapter (NAIFA-Maryland) in urging the Maryland legislature to reject provisions in the Financial Consumer Protection Act of 2019 (Senate Bill 786 and House Bill 1127) that would impose a fiduciary duty on all financial professionals in the state.
NAIFA-Maryland President Brian Jolles will testify March 13 at a legislative hearing on the bill in Annapolis. He will discuss the potential harmful impacts a fiduciary requirement would have on his business as a financial advisor and his clients.
NAIFA believes financial advisors should be required to act in their clients’ best interests, but fears that the Maryland fiduciary proposal would make it very difficult for advisors to serve middle- and lower-income Marylanders and would prevent some of these individuals and families from obtaining needed financial guidance and products.
A Regulatory Patchwork
The Securities and Exchange Commission (SEC) and National Association of Insurance Commissioners (NAIC) are working on standard of care proposals that would have broad, national applicability. In the interests of uniformity and consistency, states should put their efforts in these areas on hold until the SEC and NAIC have completed their work.
If Maryland and other states pass their own standard of care laws, they would likely create a patchwork of varying or even contradictory rules and regulations. Inconsistency in the rules would only confuse consumers and would create costly compliance difficulties for advisors and financial institutions who operate in multiple states. State laws and regulations that contradict each other or federal laws and regulations could even make compliance impossible.
“Main Street Marylanders need the products, services and advice of NAIFA members,” said NAIFA CEO Kevin Mayeux. “A strong, consistent, national best interest standard of care that protects consumers also protects the reputation of NAIFA members and other professional advisors and strengthens the financial services industry. Unfortunately, laws that go too far can have the unintended consequence of placing barriers between advisors and those Main Street clients who need their help. NAIFA is supportive of the SEC’s efforts and is working with the agency to help the Commission find that proper balance.”
Don’t Leave Main Street Investors Behind
The fiduciary requirement of Maryland’s proposed law will likely result in small and mid-sized investors losing access to products, advice and services. A fiduciary duty requirement will result in many advisors and firms transitioning from a commission-based business model to a fee-based structure. Most fee-based business models require account minimums, often $250,000, $500,000 or larger, which many smaller investors cannot maintain. These individuals and families will have fewer choices and less access to financial advice and products.
Research has found that many small and mid-size investors strongly prefer doing commission-based business with their advisors. Clients nearing retirement, who have already settled on their financial plan, often benefit from a commission-based relationship. These clients do not wish to hire fee-based planners. Instead, they prefer to maintain their investments in less expensive, commission-based accounts over which they have greater control. Under the proposed law, these investors could either lose access to the services of advisors or be forced to pay fees that exceed their current commission expenses.
“Limiting consumers’ options does not provide them greater protection,” Mayeux said. “Rather, it places them in greater financial peril, as people who do not work with advisors are less likely to adequately plan and invest for their retirement.”
NAIFA members primarily serve Main Street investors, according to a recent survey of members that found 80 percent of respondents said their businesses primarily serve middle- to lower-income families and individuals. Almost half (45 percent) say the “typical annual household income” of their clients falls between $50,000 and $100,000; 34 percent say their typical client’s annual income falls between $100,000 and $150,000; and 4 percent say their typical client earns less than $50,000 annually.
  • Posted March 13, 2019 IN

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