September 20, 2022
NASAA 2022 Fall Annual Meeting
Nashville, Tennessee
Past President Lubin:
Andrew, please join me onstage.
We will now have the opportunity to talk with the newly inaugurated 105th NASAA President, Andrew Hartnett to discuss topics and issues likely to occupy much of his time in the coming year.
Welcome President Hartnett.
President Hartnett:
Thank you, Melanie, and thanks to all of you for joining us today. I am incredibly honored to continue my service to NASAA and by the confidence placed in me by NASAA members to lead the association this year.
Melanie, before I begin, I first want to thank you for your outstanding leadership this past year as NASAA President. Your vision, knowledge, commitment, and passion have helped me, and helped all of us, to do our best work.
Past President Lubin:
Thank you, Andrew. I appreciate your kind and generous words.
To start, Andrew please tell us who will be joining you on NASAA’s leadership team this year.
President Hartnett:
I’m very pleased to announce NASAA’s new Board of Directors and Section Chairs. When I call your name, please stand and remain standing.
- Claire McHenry of Nebraska has been elected our new President-elect.
And, of course, you will continue your service on the Board as immediate past president.
The remaining Board members are:
- Tom Cotter of Alberta.
- Marni Rock Gibson of Kentucky.
- Eric Pistilli of Pennsylvania.
- Andrea Seidt of Ohio.
- Leslie Van Buskirk of Wisconsin, and
- Diane Young-Spitzer of Massachusetts.
Please join me in a round of applause as we think both NASAA’s incoming Board members and those who have completed their service.
I also want to thank Kevin Hoyt, our member from New Brunswick, for his service on the NASAA Board.
Later today I will be asking the Board to appoint the following NASAA members to serve as Section Chairs and in some instances, co-chairs.
Having been a section chair, I know how much work is involved and I want to thank you all in advance for agreeing to take on these important roles. Assisting the Board and me this year will be:
- Broker-Dealer Section – Chair, Stephen Bouchard of the District of Columbia.
- Corporation Finance Section – Chair, Bill Beatty of Washington.
- Enforcement Section – Co-chairs, Amanda Senn of Alabama and Brett Olin of Montana.
- Investment Adviser Section – Chair, Lisa Hopkins of West Virginia.
- Investor Education Section – Co-chairs, Jillian Lazar of Delaware
Past President Lubin:
This is an experienced and dedicated team. Please join me in thanking each of them for their continued service in NASAA leadership.
President Hartnett:
We are fortunate in NASAA to have many talented, dedicated members willing to offer their considerable talents to help lead our committees and project groups. They bring a diverse mix of skills and talents, new perspectives, and considerable experience to these roles.
Together, I know we will have a productive and successful year.
We are also fortunate to have a great team at the Corporate Office. Whether it’s reviewing and assisting in commenting on regulatory proposals or legislation, drafting amicus briefs, advising the Board, assisting Section Committees, handling communications, planning our meetings, or managing our internal operations, they bring their A-game every day.
Past President Lubin:
Before we jump into the issues, tell us a bit about yourself, and your role as Deputy Administrator for Securities, and the Iowa Insurance Division.
President Hartnett:
After graduating from law school, I began my career as an associate in a law firm in St. Louis.
From private practice I made the move to public service when I joined the Missouri Attorney General’s Office where I served as Assistant Attorney General and then Chief of Staff.
I became Missouri Securities Commissioner in January 2013 where I had the opportunity to work with NASAA. I went back into private practice for a couple years following a change in administrations at my office.
I joined the Iowa Insurance Division as Deputy Administrator for Securities in June 2019, and in my current role, I direct the activities of the Securities and Regulated Industries Bureau.
At NASAA, I have served on the Board including as Treasurer for the association. I have the good fortune to serve on, and in some cases lead, a number of committees including the Enforcement Section, Broker-Dealer Section, Federal Legislation, Strategic Planning, CRD/IARD, Senior Issues & Diminished Capacity, Regulation Best Interest, Finance and Audit, and others.
Past President Lubin:
You’ve certainly been active in NASAA and worked on a variety of important issues which has, no doubt, prepared you well for your next role. Looking ahead, what’s on tap for NASAA in the coming year?
President Hartnett:
As past NASAA presidents know well, we are stewards of NASAA’s mission to serve its members and we are guided in this work by NASAA’s strategic plan, our mission, and our vision.
These tools help us prioritize our work and identify the tasks we have ahead of us.
For instance, our strategic plan has a goal to continue our ongoing efforts to address regulatory issues linked to digital assets such as cryptocurrencies.
Past President Lubin:
Those efforts have to begin, do they not, with the basic question of whether digital assets, including cryptocurrencies, are securities. What are your thoughts on that question?
President Hartnett:
As a starting point, I approach the question of whether digital assets are securities the same way we’ve approached that question for many other products over decades. We use well established tests, including the Howey and Reeves tests, that most everyone in the room is familiar with. And if it meets one of those tests then it’s a security.
That approach leads me to conclude that many crypto tokens are investment contracts.
Past President Lubin:
I think that approach is probably within the mainstream for many securities regulators and as a result states have been particularly active in responding to questions and complaints from investors involving these products. Do you see much in the way of change in how NASAA and its members will continue to engage on this issue?
President Hartnett:
We’ve been active on a number of fronts and I expect all of those initiatives will continue.
For instance, States have pursued fraudsters who seek to fleece investors by promoting fraudulent opportunities involving new technologies, starting with Operation CryptoSweep several years ago and continuing through today.
States have also sought to educate investors about the significant risks that so often come with investing in these products and markets; ultimately, it’s their money, and we want investors to better understand the risks they are taking.
As you well know from your Congressional testimony, we will continue to engage policymakers to ensure that Congress allows the full policymaking process to occur and, when engaging in this process, seeks to better understand and preserve the important role of the states.
We will also look for ways to continue to expand educational opportunities to equip members with the information to stay abreast of this ever-evolving field. We have our work cut out for us there given how fast technology moves.
Past President Lubin:
You’re right that digital assets are certainly front of mind for many regulators, policymakers, and the industry. I would imagine, though, that you’ll focus on other matters as well. What else are you focused on this year?
President Hartnett:
NASAA has focused a lot of energy and resources in seeking to understand how Regulation Best Interest is being implemented and its impact on investors. Currently, states are conducting onsite examinations of broker-dealers and gathering data as part of this effort.
For some, this topic might be about the resources firms have dedicated to implement the rule and that’s certainly one part of the discussion. But at the end of the day, this regulation is really about pocketbook issues for Main Street investors.
Our work has been focused on making sure that investors get the full benefit of this regulation.
- For instance, have firms taken the necessary steps to address conflicts that clouded recommendations or resulted in clients being put in poor performing or higher cost products?
- Are firms taking the time needed to educate reps on the products and strategies they offer?
- Have investors been steered to the accounts best aligned with their needs?
- Are investment strategies focused first and foremost on what’s best for the investor?
I hope the answer to each of these questions is an unequivocal yes, but you’ll understand that we’ll want to verify that’s the case.
And in the end, to the extent firms are doing these things it means investors are being well served and their hard-earned dollars are being put to good use.
Past President Lubin:
So how will NASAA proceed on Reg BI implementation in the coming months?
President Hartnett:
To help us carry out our ongoing Reg BI implementation initiatives, we are realigning the work of our Regulation Best Interest Committee within the Broker-Dealer Section. The Section has the framework to facilitate the ongoing exams and reporting of results. It also has mechanisms to continue our policy discussions around the conduct standard and how states are viewing this issue.
Past President Lubin:
When talking about Reg BI you used the phrase “pocketbook issues for main street investors.” That could cover a lot of ground. What do you mean pocketbook issues for main street investors and how do you see NASAA’s work impacting those issues?
President Hartnett:
I use that phrase as a way to think about how what we do makes investing safer or the capital markets more efficient for the benefit of investors.
For instance, our members are frequently referred to as the “cops on the beat.” We investigate cases that would not otherwise be investigated by other authorities and work with local authorities to punish wrongdoers. And we certainly do our best to get recoveries for defrauded investors and work to keep potential fraudsters out of our markets. These are very real ways in which our members work to protect investors and their hard-earned money. That is, in part, what I mean by pocketbook issues important to main street investors.
Past President Lubin:
But it’s not just enforcement, correct?
President Hartnett:
Correct. Another example is the fees investors pay for products and services be it the fees charged by broker-dealers or investment advisers. We touched on this in the Reg BI discussion, but it also certainly applies for investment advisers as well.
The Investment Adviser Section has been examining the issue of how IAs charge their clients. Most of us are familiar with the assets under management model but newer models have emerged in recent years.
As always, the touchstone here is reasonableness of the fees and the services provided for those fees. We certainly don’t want to stand in the way of efforts to right-size fee structures to better fit client needs, but, as I stated earlier, we want to make sure that fees are reasonable and that the services performed are in line with those costs.
The Section will continue its work in this area in the coming weeks and months.
Past President Lubin:
NASAA has undertaken several significant rules this past year. How do you see that continuing?
President Hartnett:
Our sections, committees, and project groups are primarily responsible for undertaking potential rule changes which are vetted through the members and Board and then posted for public comment.
To the extent rules are ultimately approved by a vote of the NASAA members, it is generally then up to the individual jurisdictions to decide how they want to move forward, or not, on adopting the rule or statement of policy.
We just wrapped up a membership meeting and the members approved a couple new model rules including a model rule on franchise questionnaires and acknowledgements and a new statement of policy on peer-to-peer lending programs. I mentioned the approval of a new model on exam validity timeframes at the CRD/IARD Forum and I know we’ll talk more about it in a minute.
We also have rules in various stages of the rulemaking process including the proposal on revisions to the REIT Statement of Policy. The comment period on that proposal closed on September 12. I expect the rules currently in process to continue along the normal rulemaking path.
Past President Lubin:
Circling back on the exam validity rule, I know you worked on that one in your role as chair of the Chair of the CRD/IARD Steering Committee. Can you tell us more about it?
President Hartnett:
The members have approved a model rule that would extend the period of exam validity for certain NASAA qualification exams. The rule is meant to align state registration with changes to FINRA’s continuing education requirements. As approved, the rule only applies to agent registration which means that a registered person can maintain their Series 63 and Series 66 for agent registration purposes for up to 5 years after leaving the industry as long as they meet certain ongoing education requirements. It currently does not apply to investment adviser representative registrations, but a rule proposal is in the works for those persons.
I worked on the rule and look forward to states implementing it in the coming months.
Past President Lubin:
Let’s move now from regulatory initiatives to a discussion about policy and legislative priorities. We’ll have a new Congress beginning in January and many state legislatures will convene for sessions. Is there anything you can share about NASAA’s legislative priorities?
President Hartnett:
I expect we’ll be busy on several different fronts.
As I mentioned, I anticipate that NASAA’s involvement in digital asset policymaking will increase this year. The Federal Legislation Committee and NASAA will continue to advocate for legislation that allows for innovation within an appropriate regulatory framework and makes sure our members retain the authority we need to protect investors.
The Empowering States to Protect Seniors from Bad Actors Act, which we hope can get to the Senate for passage later this year, is certainly a priority for NASAA as it would bolster our efforts to combat the exploitation of older investors. This legislation would establish a grant program to enhance existing efforts by state securities and insurance regulators to protect senior investors and policyholders from financial fraud.
We appreciate the bipartisan support for this bill and also the support of industry organizations.
As for state legislative efforts, I look forward to our members considering advancing the model whistleblower and the model restitution bills.
Past President Lubin:
That’s a great segway to discuss NASAA’s work to protect older investors from financial exploitation. You may be the only NASAA member to have shepherded what we sometimes refer to as “report and hold” laws through two states.
President Hartnett:
When I was the Missouri Securities Commissioner, I worked with a coalition to pass the Senior Savings Protection Act. The SSPA allows broker-dealers and investment advisory firms to take certain actions in collaboration with the Missouri Securities Division and DHSS to prevent, detect, and halt potential financial exploitation. This was a big effort in Missouri.
Once I moved to Iowa, I worked to help pass similar state legislation called the Senior Financial Exploitation Law.
These laws, as you know, are very similar to NASAA’s model act. I am heartened by how much progress we’ve made in getting similar laws passed. We are currently up to at least 34 states that have adopted similar laws. I look forward to continuing to work with regulators, advocates, and industry on this important issue.
I also think its time we take a fresh look at how certain products are being sold to older investors. We once referred to these programs as “free lunch” or “free dinner” seminars and I am concerned that some of the practices we saw in the past associated with these events are returning especially as we continue to return to many of the in-person events that stopped in the midst of COVID.
Past President Lubin:
Andrew, it’ll be a busy year for you and, I don’t need to tell you this, collaboration is essential, not only with fellow regulators but also with other external stakeholders.
President Hartnett:
Yes, NASAA members have a long history of working together to tackle complex issues and I look forward to continuing that tradition.
I also look forward to building on the collaborative relationships we have with the SEC and FINRA given our common interests. None of us has all the resources we want or need and leveraging our respective strengths is good for investors and makes us better stewards of the resources we do have.
I also look forward to keeping the channels of communication open with members of the industry.
Past President Lubin:
I would like to wrap up our discussion with a topic focused more on you. The role of NASAA President is a significant commitment. What is it about NASAA that has motivated you to assume this important office?
President Hartnett:
Through NASAA, I’ve had the good fortune to build on the work underway in our various offices and participate in interesting and wide-ranging projects. And as anyone involved with NASAA will tell you, it’s a great way to meet and network with some of the brightest and most talented people you’ll encounter.
I know I’ve said this a couple of times already, but it very much goes back to the fact that our work has a direct and positive impact on main street investors and the pocketbook issues that are so important to them.
We understand what’s important to investors and entrepreneurs alike because we literally talk to them every day. We want investors to be treated fairly and we want entrepreneurs to build successful businesses. The great thing about the work we do is that we can see the results in our own communities.
Not long after joining NASAA, Patty Struck encouraged me to get involved. I see a lot of people here shaking their heads because the same thing happened to them. Patty was and is an inspiration to many of us and I can say the same for Lynne Egan. Both were true champions for investors and embodied everything that is great about NASAA.
Past President Lubin:
I can also speak from experience that a great support network and team back home are important.
President Hartnett:
I’m really fortunate in that regard and that my boss, Iowa Insurance Commissioner Doug Ommen, understands and supports the commitment necessary to take on the role of NASAA President. I appreciate his confidence and support.
Thank you, Melanie, for this conversation and your leadership this past year.
Past President Lubin:
Thank you, President Hartnett. I know you will have a great year ahead.
The post 2022 Presidential Inaugural Fireside Chat appeared first on NASAA.
