Today a federal court in Missouri issued a final ruling in favor of the Securities Industry and Financial Markets Association (SIFMA) on its legal challenge to two newly enacted Missouri disclosure and consent rules.
The rules required financial professionals who consider “a social objective or other nonfinancial objective” in their investment advice to disclose this to their customers and obtain the customers’ written consent to state-mandated language in the rules. The rules characterized a “nonfinancial” objectives as anything other than maximal “financial return,” and the court agreed with SIFMA that the rules could easily be read to encompass objectives that are routinely part of investment decisions, such as tax considerations, diversification, risk tolerance, time horizon, liquidity needs, faith or values-based objectives, and local community investment objectives, among others.
The court ruled in favor of SIFMA on all counts. The court issued a declaratory judgment stating that “the Rules are preempted by [National Securities Markets Improvements Act (NSMIA)] and [Employee Retirement Income Security Act (ERISA)], are unconstitutional under the First and Fourteenth Amendments of the United States Constitution, and are impermissibly vague under the Fourteenth Amendment of the United States Constitution.” The court also ordered a statewide permanent injunction prohibiting the implementation, application, or enforcement of the rules.
SIFMA’s President and CEO, Kenneth E. Bentsen, Jr., remarked: “Congress enacted NSMIA to alleviate the redundant, costly, and ineffective dual federal/state regulation of our securities market system. Today’s ruling was necessary to prevent Missouri from violating NSMIA, among other things, and from hindering communications between Missouri investors and the financial professionals who serve them. This decision marks a major victory not only for our national securities market system, but also for our nation.”
Bentsen continued: “Under today’s federal securities laws, financial professionals are already required to provide investment advice and recommendations that are in their customers’ best interest. That means they cannot put their interests ahead of their customers’ interests when recommending securities. The Missouri rules were thus unnecessary and created confusion.”
The court’s full decision can be found here: https://www.sifma.org/resources/submissions/order-on-motions-u-s-district-court-for-the-state-of-missouri-central-division/
