The Securities Industry and Financial Markets Association (SIFMA) has filed a lawsuit challenging two new rules passed by the state of Missouri’s Securities Division. The rules require financial firms to obtain client signatures on state-scripted documents before providing advice that “incorporates a social objective or other nonfinancial objective”.

The complaint noted that the two new rules require financial firms and clients to acknowledge that incorporating these objectives will result in investments and advice “that are not solely focused on maximizing a financial return” for the client. The rules also require firms to provide written scripts to clients annually, and to obtain new client signatures on the scripts “no less than every three years”.

Missouri’s new rules became effective on July 30. The Securities Division is part of Missouri’s Secretary of State’s office.

Federal securities laws

SIFMA, an industry trade group representing securities firms, banks and asset management companies, argues that the rules – which are not required by any other state – are impermissibly vague, subjective and over-reaching, and ignore the fiduciary duties already owed by investment advisers to act in their clients’ best interests.

To reiterate that final point, under federal law, the complaint notes, firms cannot place their interests ahead of their customers’ interests for any reason, be it “social,” “nonfinancial,” or other reasons.

“Notably, the new Missouri rules fill no void or blind spot that would protect Missouri investors today.”

SIFMA press release

The trade group also says the rules frustrate federal securities laws’ goal of promoting regulatory consistency. 

“Notably, the new Missouri rules fill no void or blind spot that would protect Missouri investors today,” SIFMA’s press release states. Instead, they require financial professionals in Missouri to create a “highly prescriptive” documentary record that none of the other 49 states require, SIFMA said.

As such, the new rules conflict with a primary objective of the federal securities laws, that is, to create a uniform, consistent, regulatory regime across all 50 states.

“We believe there is no federal protection for investment advisers to invest funds against the will of the investor and we will vigorously fight to protect the right of Missourians to be in charge of how their money is being invested.”

John Ashcroft, Missouri Secretary of State

Response from MO Secretary of State

In response to SIFMA’s suit, Ashcroft stated: “The rule implements client disclosure standards pertaining to security investments and how investment advisers and broker-dealers disclose investment strategies that propagate values-based agendas that are not purely focused on generating profit for their clients.

We believe there is no federal protection for investment advisers to invest funds against the will of the investor and we will vigorously fight to protect the right of Missourians to be in charge of how their money is being invested,” Ashcroft added.

The lawsuit does not ask for monetary relief; instead, it seeks injunctive relief and declaratory relief rendering the new rules invalid and unenforceable.

In case you were wondering, Ashcroft is indeed the son of the man (with the same name) who served as the 79th US Attorney General in the George W Bush administration from 2001 to 2005.