Petition to Clarify NJ Proposed Fiduciary Rule (Proposal Number: PRN 2019-044; Proposed New Rule N.J.A.C. 13:47A-6.4)

We, the undersigned members of the community of investment professionals, who are located and/or do business in New Jersey, join our voices with ADISA (the Alternative & Direct Investment Securities Association) to respectfully request that the State of New Jersey Bureau of Securities consider the comments and suggestions expressed in this submission regarding Proposed New Rule N.J.A.C. 13:47A-6.4and adopt such suggestions in the Final Rule.

Characteristics of Alternative Investments include: 

  • A diversity of non-traded and non-marketable products; 
  • The non-regular basis of most product recommendations;
  • The relationship between buyers and their financial professionals with respect to these securities, which is generally more infrequent than on-going in nature;
  • The crucial role of alternative investments in retail portfolios: 78% of “millennials” and 70% of “Gen X” savers endorse having access to alternatives for their investment accounts; 1
  • The significant positive impact on investor rates of return when incorporating alternatives. 2

We agree with the need to set appropriate standards around advice provided by all financial professionals, whether episodic or on-going in nature. We further recognize the goal of NJ investors to maintain diverse portfolios that will aid them in meeting their goals. 

Therefore, we urge the State to add greater clarity to language referring to the "best of reasonably available options" contained in Subsection (b)2i and the “best of the reasonably available fee options” in Subsection (b)3 of the Proposed Rule.  This will help ensure that broker-dealers and their registered representatives who recommend alternatives: 

  • Can align their conduct regarding alternative investments with the Rule, given the challenges involved in comparing investment products made available by any single broker-dealer; and
  • Can satisfy their duty of due care.

"Non-traded" or non-marketable investment products are distinct from their publicly-traded counterparts in many respects, including cost, liquidity and complexity.  The duty of care owed by financial professionals to their customers must be capable of being maintained in a manner that is consistent with the unique nature of alternative investments. The State should make this point unambiguous in the Final Rule. 

Thank you for considering our perspective. 

1. Natixis Global Asset Management Survey, 2014. 

2. From 1999-2009 the generic “balanced” (i.e., 60% equity/40% bond) portfolio after fees returned zero percent (0%), while the Yale, Harvard, and Stanford portfolios with alternatives generated returns ranging from 135% to 198% in total (Wildemuth, D. Wise money: How the Smart Money Invests. McGraw Hill, 2012, pp. 64-65).

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