Will XY Planning Network and the seven state attor- neys general succeed instopping the SEC’s Regulation BestInterest in its tracks? We’ll know soonenough, as the U.S. Court of Appeals forthe 2nd Circuit agreed to hear oral arguments in the case on June 2.
The appeals court said in early Maythat it would expedite hearing the case,as Reg BI’s compliance date takes holdon June 30. “We’re hopeful an expeditedhearing leads to an expedited rulingbefore June 30,” which is Reg BI’s compliance date, Michael Kitces, XYPN’sco-founder, told me in an early Mayemail message.
Compliance with Reg BI and theSEC’s Customer Relationship SummaryForm, or Form CRS are two of the mostarduous rules that advisors and broker-dealers must contend with this year.The state attorneys general of NewYork, California, Connecticut, Delaware,Maine, New Mexico, Oregon and theDistrict of Columbia pressed the appealscourt in mid-April to expedite oral arguments “as soon as practicable” as RegBI’s June 30 compliance date nears.
“We and the states are aligned inwanting to see an outcome to this soonerrather than later (to bring certainty forthe industry either way about whetherthe June 30 effective date is going tohappen, or not),” Kitces said in April.
The uncertainty of a response by thecourt “added by coronavirus just makesit more uncertain,” Kitces said. XYPN’slawsuit against the rule has been consolidated with the state attorneys general lawsuit.
Attorneys for the RIA said in an April
14 brief before the appeals court that
the “fundamental purpose” of Reg BI is
“to carve up the market for investment
advice and introduce new standards to
govern the actions and disclosures of
broker-dealers as distinct from regis-
tered investment advisors.”
XYPN lawyers from Gupta Wessler
argued that Reg BI is “premised on
an unreasonable understanding of the
activities and laws separating” advi-
sors and BDs. The result, XYPN main-
tains, “is that entire businesses will
be subject to [Reg BI as BDs] when
they should be regulated as investment
advisers. The regulation therefore ‘can-
not stand as promulgated.’”
Reg BI “is just the latest in a series of
attempts by the SEC to exceed or misap-
ply its regulatory authority in ways that
have required judicial scrutiny,” XYPN
attorneys said. “In this latest round”
with Reg BI, “the SEC has written a rule
that cannot be squared with the plain
text of the Dodd-Frank Act, has ignored
evidence from its own empirical stud-
ies, and has even contradicted its own
past interpretations of the Investment
Advisers Act,” XYPN asserted.
The SEC maintained in its earlyMarch brief before the court, however,that Reg BI should be upheld because it“reasonably balances” the SEC’s regulatory objective, and reflects the agency’sconcern that “requiring broker-dealersto conform to a regulatory regime that istailored to the services and fee arrangements offered by investment advisorswould reduce the availability of brokerage services.”
LABOR FIDUCIARY RULE ON
A Labor Department fiduciary rule toalign with Reg BI, however, won’t be outanytime soon. Preston Rutledge, assistant
THE PLAYING FIELD
By Melanie Waddell
The Reg BI Battle Comes to a Head
Also, Iowa joins other states that have created their own fiduciary rules.
XY PlanningNetwork’slawsuit againstthe rule has beenconsolidatedwith the sevenstate attorneysgeneral lawsuit.