Reaching Out to State Regulators

By Chris Hayes, FSI State Regulatory Affairs Counsel

As part of FSI’s 2013 State Outreach Plan, FSI staff have planned and executed meetings with state regulators and NASAA leadership to discuss issues of importance to our industry and help build stronger relationships between members and their state regulator. Recently, I traveled to the Midwest to meet with Andrew Hartnett, the recently appointed Missouri Securities Commissioner, and Heath Abshure, NASAA President and Arkansas Securities Commissioner. A (somewhat) short account of my time with them follows.

st.louis-from-planeDay 1: Showing the State (our Industry’s Issues)

On April 25, I flew into Lambert International and drove east on Interstate 70 to the site of our first meeting, which was held in Jefferson City, Missouri, in the offices of the Missouri Securities Division. It was a small gathering held in Commissioner Hartnett’s office, and included my colleague David Bellaire and FSI members Seth Miller of Cambridge Investment Research, Inc. and Jon Stanfield of VSR Financial Services Inc.  While in town, David and I had the wonderful opportunity to sample Lutz’s BBQ, a gas station BBQ joint located in Jefferson City and recommended as the “best food in Jefferson City” by Commissioner Hartnett.  We had previously met Commissioner Hartnett at NASAA’s Spring Conference earlier in April where he had provided this helpful recommendation.

It was important to speak with Commissioner Hartnett because, as a newly appointed Commissioner, he expressed interest in hearing from industry as part of an effort to carry out his duties. The agenda included explaining the ins and outs of the independent broker dealer business model, giving our members the opportunity to voice their concerns about the Missouri Securities Division and the state’s blue sky laws, and detailing ways in which we could be a resource to the Division going forward.

It was an engaging conversation; Commissioner Hartnett was receptive to learning about the concerns of the industry and was interested in educating himself further on our advocacy priorities – especially the DOL Fiduciary Rule and the need for independent contractor status to be preserved. The discussion of the DOL Fiduciary Rule led to a deeper discussion of the uniform fiduciary standard for both broker dealers and investment advisers and the proposed SRO for investment advisers.  Commissioner Hartnett had a strong understanding of the issue, but appeared to appreciate an explanation of our members’ position on the uniform fiduciary standard.  During the meeting, we also talked about the issues presented by social media legislation and the JOBS Act; he was very aware of the social media legislation issue and indicated that the bill in the Missouri legislature now included the carve-out for compliance with federal and state securities laws. Our JOBS Act conversation included a mutual understanding of the risks posed by fraudulent crowdfunding offerings and funding portals going forward – to both broker dealers and investors.  FSI and the Commissioner have agreed to work together on an early warning system in Missouri to help advisors and firms report fraudulent schemes arising out of the JOBS Act to the Missouri Securities Division.

All in all, the meeting with Commissioner Hartnett was extremely pleasant and he appeared receptive and understanding of our concerns with regulatory communication with firms, JOBS Act and the uniform fiduciary standard.  Jon and Seth also found the meeting valuable and will feel more comfortable picking up the phone to resolve any regulatory issues with Commissioner Hartnett. Tomorrow, David and I head to Arkansas to meet the NASAA President – more to come!

little-rock-streetDay Two: Rockin’ Conversation in Little Rock

After a quick flight south, David and I met with NASAA President and Arkansas Securities Commissioner Heath Abshure in his Little Rock office, with the goal of building a stronger relationship with NASAA as well as introducing him to the independent broker-dealer industry and the challenges our members face on a daily basis.  Commissioner Abshure has been a vocal advocate of NASAA going on the offense in preventing preemption of state blue sky laws.

Our morning meeting with Commissioner Abshure was very productive. The agenda included updating him on our growth and a strong focus on outreach to state regulators, and he seemed very receptive to working with the industry to protect investors, despite any potential disagreements on policy issues.

We highlighted concerns about the outside business activities of advisors relating to equity crowdfunding under the JOBS Act and the competitive issues presented by funding portals to broker dealers; Commissioner Abshure believes the greater threat to broker dealers is from the new changes under Rule 506 to general solicitation in the law.  Securities offerings are required to be registered with the SEC, unless they qualify for an exemption to registration.  Regulation D details three exemptions from registration including Rules 504, 505 and 506.  Currently, Rule 506 allows companies who qualify to raise an unlimited amount of capital as long as it is from sophisticated, accredited investors and the offering does not generally solicit or advertise to potential investors.   The new JOBS Act provision will remove the restriction on general solicitation and advertising and allow these investments to be widely advertised.  The restriction that the investors be accredited has not been removed.  Commissioner Abshure indicated his willingness to work with broker dealers and financial advisors to help them protect themselves from clients that decide to invest in crowdfunding offerings independently and bring these investments to their broker dealer for custodying.

We also mentioned our interest in uniformity among the states, and in engaging with them. Commissioner Abshure indicated that he understood the purpose of our outreach and said he would be attending the NASAA Broker-Dealer Section’s meeting with FSI in late May.  Commissioner Abshure also indicated that he could not think of any specific concerns he’d had with FSI members, which was positive news to hear.

Overall, the meeting with Commissioner Abshure was a step in the right direction. It was clear that we had shared concerns over the JOBS Act, and could focus on working together on this and other issues the two organizations agree on. Commissioner Abshure was willing to hear from industry on the issues, appeared open to seeing industry as a partner in the protection of investors, and it’s definitely great to have that shared goal.

More to come on our meeting with regulators this year, so keep an eye out for updates!


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