A few weeks ago, a Federal Judge in Missouri ruled in favor of the Security Industries and Financial Markets Association (SIFMA) and struck down two regulations imposed by the Missouri Securities Division. These regulations required investment advisors to file reports with the state when providing advice that considered objectives beyond the profit incentive. This marks a major victory for Missouri investors, as the regulations were seen as onerous and bureaucratic, complicating the relationship between investors and financial advisors. Investment decisions, at their core, are best left between the investor and advisor—especially since both federal and state laws already have regulations in place to protect investors.
The problem stemmed from rules that required financial advisors to disclose to investors AND the state when providing advice based on non-financial criteria, such as values-based objectives or community investments. Upon disclosure, advisors were also required to have investors sign state-written consent forms, which would then be submitted to regulators. These regulations were both redundant and costly, as federal regulations already mandate that financial professionals provide advice in their clients’ best interests.
Sometimes, sound financial advice must consider objectives beyond pure profit, like portfolio diversification or aligning investments with personal values. Under the Missouri regulations, advisors would have been required to document such advice, even though it is already regulated at the federal level or is a necessary component of an investment plan.
Who bears the cost of these policies? The investors, advisors, and Missouri taxpayers. Advisors would be burdened with the responsibility of repeatedly hounding their clients for signature approval, even for the most mundane proceedings, and both parties would spend valuable time and resources filling out more paperwork. Afterward, these forms would be submitted at a cost to both the advisor and the investor. This process would then be repeated every three years, further increasing the administrative burden.
On the other side, taxpayer dollars would be expensed to fund the collection and maintenance of these forms. Additional infrastructure would need to be developed to house the documents, and more officers would be hired to monitor compliance. Moreover, Missouri taxpayers would have to pay for prosecuting firms or advisors who failed to comply with the regulations. Missouri taxpayers have already been burdened with hundreds of thousands of dollars in legal fees in the state’s failed defense of these rules, and this financial loss may continue to grow as legal proceedings unfold.
When investors receive advice, their primary concern is ensuring that the advice is intended to maximize their returns. Any other considerations are secondary and should remain between the investor and the advisor. The state should not insert itself into these discussions or mandate what kind of advice is or isn’t approved.
Missouri must continue to foster a business-friendly environment. Regulations like these add unnecessary steps to doing business and risk driving investors out of the state, which would cripple Missouri’s business owners. The recent ruling is a step in the right direction, ensuring that the law sides with the well-being of Missouri businesses, and I, for one, celebrate this victory for business owners across the state.
Healthcare business owner from Creve Coeur and a former Republican Candidate for office.
