Similarly, SIFMA alleged that the broker-dealer rule “requires members to obtain and preserve consent forms, which is ‘making and keeping records’” beyond what NSMIA requires.SIFMA pled that the investment-adviser rule regulates SIFMA’s members through their representatives in Missouri and that the scope of regulation goes beyond the licensing, registering, or qualifying of investment advisers – the three areas of regulation that NSMIA allows. Regulating “what investment adviser representatives must disclose to their clients” is “distinct from the areas of state regulation permitted by NSMIA.”.Turning to the merits, the court concluded that SIFMA had adequately alleged that the Missouri rules are preempted by NSMIA. The court first held that SIFMA had standing to sue. Although its members are federally covered investment advisers, which are excluded from the Missouri rules, SIFMA sufficiently alleged for pleading purposes that the investment-adviser rule imposes compliance costs on SIFMA members who have investment-adviser representatives in Missouri and that SIFMA could sue on their behalf. Missouri moved to dismiss, contending that SIFMA lacked standing to sue and that the Complaint failed to state a claim in any event. The court denied the motion in all respects. ![]() The rules are unconstitutionally vague because they “fall far short of providing regulated persons with the ability to ascertain with certainty what strategies or securities include ‘social’ or ‘nonfinancial objectives.’”.The rules violate the First Amendment’s protection against compelled speech because they “require Affected Persons to issue state-scripted documents and to secure written consents conforming to the state’s prescribed language related to a controversial matter of public debate.”.The rules are preempted by the Employee Retirement Income Security Act to the extent they apply to ERISA plan assets. ![]() The rules are preempted by the National Securities Markets Improvement Act of 1996 (“NSMIA”) to the extent they apply to federally covered investment advisers and representatives because they require those Affected Persons to incur costs and undertake duties beyond those mandated by federal law.SIFMA challenged the rules on four grounds: The rules require Affected Persons to obtain “written acknowledgment and consent” from their clients either when the relationship is established or before effecting discretionary trading or providing advice. “Nonfinancial objective” means “the material fact to consider criteria in the investment or commitment of client funds for the purpose of seeking to obtain an effect other than the maximization of financial return to the client.”.“Socially responsible criteria” are “any criterion that is intended to further, or is branded, advertised, or otherwise publicly described by” the Affected Person as furthering “international, domestic, or industry agreements relating to environmental or social goals,” “corporate governance structures based on social characteristics,” or “social or environmental goals.”.“Incorporat a social objective” means considering “socially responsible criteria in the investment or commitment of client funds for the purpose of seeking to obtain an effect other than the maximization of financial return to the client.”.In June 2023, the Missouri Securities Division adopted two rules applicable to broker-dealers, investment advisers, and their agents and representatives (the “Affected Persons”). The rules deem Affected Persons to engage in dishonest or unethical business practices in Missouri if those persons do not disclose to clients or prospective clients that the Affected Person “incorporates a social objective or other nonfinancial objective” into any discretionary investment decision or any advice or solicitation to buy or sell a security. Ashcroft – upholds a noteworthy response from the securities industry to the anti-ESG backlash that has emerged in the past few years and has politicized investment decisionmaking. ![]() ![]()
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