A U.S. District Court judge stopped Missouri from enforcing rules that require financial advisors to obtain signed consent forms before incorporating ESG objectives into investment advice.
Judge Stephen R. Bough issued a permanent, statewide injunction on August 14 preventing the rules from being enforced. Bough found, among other things, that the rules are preempted by federal law and violate the plaintiff’s constitutional rights. “This significant harm outweighs any interest Defendants may have in the Rules and enforcing them. The balance of harms factor weighs in favor of a permanent injunction,” the judge wrote.
The Securities Industry and Financial Markets Association (Sifma) filed the case against John R. Ashcroft, Missouri’s secretary of state, and Douglas M. Jacoby, Missouri’s securities commissioner.
Advisor Victory
“The decision is in complete agreement with the Investment Adviser Association’s longstanding position that state laws or rules that attempt to impose substantive regulation on SEC advisers and their adviser personnel are preempted by federal law,” the IAA said in a statement following the ruling.
The IAA maintained that allowing Missouri to impose the rules would have had widespread negative consequences for investment advisors with a national business. “It would have subjected advisers’ fiduciary judgment to divergent and shifting political influences on an endless range of issues, flooding the field of investment adviser regulation with inconsistent, unpredictable, overlapping, and costly state rules and regulations,” the IAA said.
A coalition of 25 states have challenged Biden administration rules allowing retirement plans to consider environmental, social and governance (ESG) factors such as climate change and racial justice when selecting investments. Last month, a U.S. Appeals Court ordered a Texas judge to reconsider his decision to uphold the ESG rule. Meanwhile in June, the U.S. Supreme Court ruled courts should use their independent judgment to decide whether federal rules are valid.
