The following op-ed was first published by the St. Louis Post-Dispatch on August 18, 2023.

The United States boasts the largest economy in the world. With less than 5% of the world’s population, the U.S. represents more than 25% of global economic activity. A key factor in our long-term economic success is our capital markets — the largest, deepest and most liquid in the world. Every day, hundreds of millions of Americans put their savings to work, financing the nation’s commercial activity, not to mention funding state and local governments. Unlike many other developed markets, we benefit from a national market system that allows investment capital to flow freely across the nation to fund the best ideas, build savings and wealth, grow the economy, and create jobs.

This did not happen by accident. Over the last 90 years, Congress passed laws to establish and bolster the national securities market, most recently with the passage of the National Securities Market Improvement Act of 1996. Before the adoption of NSMIA and the foundational securities laws of the 1930’s, the U.S. had a balkanized state by state regulatory framework that hampered the markets’ growth.

NSMIA preserves the efficiency of our capital markets by fairly allocating regulatory responsibility between state and federal governments. Among other things, it prohibits states from adopting unique regulations that require financial professionals to create records “that differ from, or are in addition to” those required by federal law. In so doing, NSMIA prevents all 50 states from imposing their own separate requirements on financial firms, which would stifle our capital markets and inhibit the free flow of capital across state lines.

This summer, Missouri Secretary of State Jay Ashcroft’s office, which regulates securities in the state, adopted new rules that require financial professionals who incorporate “a social objective or other nonfinancial objective” into their investment advice to disclose this to their customers and obtain the customers’ written consent on a state-prescribed form. “Social” or “nonfinancial” objectives may include just about anything, including such multifaceted objectives as tax considerations, diversification, risk tolerance, time horizon, liquidity needs, faith or values-based objectives, and local community investment objectives, among others.

These rules violate both the letter and spirit of NSMIA because they impose conditions that the law explicitly and exclusively granted to federal regulators. Their practical effect, and precedent, only serve to undermine our national securities market structure to the detriment of our retail and institutional investors and companies, governments and non-profits who today access this critical structure to grow and preserve wealth and fund capital formation — and thereby grow our economy.

Last week, my organization, SIFMA, which represents the nation’s securities industry, filed a lawsuit to challenge these recently enacted Missouri rules that undermine our federal market system and directly conflict with NSMIA.

Additionally, the new Missouri rules are entirely unnecessary. Under existing federal securities laws, financial firms are already required to provide investment advice that is in the best interest of their customers — meaning that the advice does not incorporate other investment objectives, unless the customer is aware of, and has consented to, such other investment objectives. In short, federal law already achieves the intent of the Missouri rules. Even setting aside the conflict with NSMIA, we believe the new rules will result in investor confusion, since the investor has already established their goals and objectives.

NSMIA may be the acronym but let’s not lose sight of what it means. The central purpose is enshrined in the name of the Act itself, ‘National Securities Markets Improvement.’ We achieved national securities markets improvement through NSMIA by preempting states from imposing overlapping regulatory responsibilities that could undermine our markets’ efficiency and effectiveness.

Missouri can and should examine for compliance with the federal best interest obligations and take appropriate action if violations are found. Why would we introduce uncertainty and confusion into a system that is already well-functioning and protecting retail investors? One federal law — for investor protection, including disclosure — does the job far better than 50 disparate state laws ever could.

In the federal lawsuit, SIFMA asks the court to find that Missouri, in promulgating its new rules, overstepped its boundaries in violation of both federal preemption statutes and federal constitutional requirements.

The decision to bring this lawsuit was not made lightly. We, however, believe it is critically important that federal primacy over U.S. capital markets is maintained, investors are protected, capital may flow across state lines and financial professionals can continue to serve their customers’ best interest.

–

Kenneth E. Bentsen, Jr. is President and CEO of SIFMA. Mr. Bentsen is also Chair of the International Council of Securities Associations (ICSA), Co-Chair of the British American Finance Alliance (BAFA) and Chairman of Engage China. From 1995 to 2003, Bentsen served as a Member of the United States House of Representatives from Texas.