On August 10, 2023, the Securities Industry and Financial Markets Association (“SIFMA”) – a leading Wall Street industry association – filed suit to enjoin new Missouri regulations requiring investment advisors (“IA’s”) and broker-dealers (“BDs”) there to obtain a prescribed form of client consent, if they use “social” or “nonfinancial” objectives in their investment analysis. The Missouri Rules are unique among the state and federal regulation of investment advisors.
“The new rules, effective July 30, 2023, require financial firms and professionals that incorporate any “social objective or other nonfinancial objective” into their analysis to obtain their customers’ written consent on a state-written prescribed script.“
SIFMA calls the new Rules unnecessary, overbroad and vague. The Rules are unnecessary because IA’s already owe their clients a fiduciary duty that prevents them from putting their interests ahead of theirs client’s interests – which may include “social,” “nonfinancial” or other individual interests: “Investment professionals also commonly provide advice based upon estate planning, tax considerations, charitable giving, and liquidity needs. Some customers also wish to incorporate faith or values-based objectives, or local community investment objectives, into their investment selections.” BDs have similar duties under Regulation Best Interest.
SIFMA alleges Missouri’s Rules as “exactly the type of piecemeal state securities regulation that Congress prohibited” in 1996 National Securities Markets Improvements Act (NSMIA). The Complaint also says the Rules are preempted by ERISA. Finally, the Complaint asserts the Rules are unconstitutionally vague and violate the First Amendment.
SIMFA’s Complaint notes that the Missouri Rules were adopted after a similar requirement failed in the Missouri legislature and that other states are considering similar requirements.
SIFMA’s release, is here: https://www.sifma.org/resources/news/sifma-lawsuit-challenges-new-missouri-rules-that-restrict-financial-professionals-ability-to-serve-their-customers-best-interests/
The Complaint, Securities Industry and Financial Markets Ass’n v. Ashcroft, No. 2:23-cv-4154 (USDC W.D. MO. filed 08/10/23 ) is here: https://www.sifma.org/wp-content/uploads/2023/08/SIFMA-Complaint-Filed-in-the-U.S.-District-Court-for-the-State-of-Missouri.pdf
PartnerTom Potter is a Partner in the firm's Nashville office and has over 35 years of experience representing business interests in securities and corporate disputes.
Tom represents broker-dealers and investment bankers in disputes ...
