The Governor of New Jersey is ordering the New Jersey Bureau of Securities to impose a fiduciary duty on all New Jersey 'investment professionals,' requiring them to place their clients’ interests above their own when recommending investments.

The idea, according to Governor Phil Murphy, is to reverse the Federal Government's 'regulatory retreat' that manifested itself in the Department of Labour's refusal to strain every nerve to keep the federal Fiduciary Rule alive. That rule was finally defeated in the federal courts during the summer.

The Governor said: "Most investors assume all financial professionals are obligated to provide unbiased advice but, under current federal standards, only investment advisors and their representatives have a fiduciary duty to put their clients’ interests above their own.

"In a distinction not often recognised or understood by investors, broker-dealers and their agents — who provide similar financial services — are subject to a less stringent duty to provide recommendations that are merely 'suitable' for their clients. Most investors are unaware that broker-dealers and their agents often receive significant undisclosed financial benefits in exchange for steering clients toward certain investment products."

New Jersey wants to be one of the first states to adopt a so-called uniform fiduciary standard, one of the many Obama-era ideas abandoned by the Trump Administration. The word 'uniform' springs from the Obama Government's desire to subject broker-dealers to a similar fiduciary standard as the one that applied to investment advisors. The necessity for it, advocates reasoned at the time, was that the lines between the two groups had blurred to the point that consumers no longer understood the differences.

One source of solace for the federal reformers in future might lie in the possibility of the Government exaggerating or at least stressing the demarcation between the two groups in investors' minds, the better to make them realise that two strains of rules exist and are not to be confused with one another. It can do this without having to change the existing provisions of the Investment Advisors Act 1940, which was set up to distinguish between broker-dealers whose job it was to be salesmen who sold securities to investors and advisors whose job it was to provide advice about investments.

The Dodd-Frank Act 2010 required the federal Securities and Exchange Commission (SEC) to work out whether the existing rules adequately protected broker-dealers’ retail customers and to conduct any necessary rulemaking to require broker-dealers to act in accordance with the fiduciary standard of conduct that already applied to investment advisors. In 2011, the regulator recommended a rule to promulgate a uniform fiduciary standard. It then proceeded to do nothing, so in 2016 the US Department of Labour stepped in and issued its own rule. That fiduciary rule was challenged in court repeatedly and survived repeatedly, until one federal court struck it down in March of this year. Instead of continuing to defend the rule, the Trump Administration abandoned it.

The Governor of New Jersey is convinced that President Trump is trying to weaken the federal Consumer Financial Protection Bureau, which the Dodd-Frank Act charges with safeguarding consumers from sharp practice.