FINRA Regulatory Notice 25-06: Capital Formation

Date: December 2, 2025
Comment Letter Link: Final Letter

Via Email Only @ russ.mccracken@vermont.gov
Russ McCracken
Assistant General Counsel
Vermont Department of Financial Regulation
89 Main Street
Montpelier, VT 05620

RE: Comment Letter Regarding DFR Regulation Number: S-2016-01 Vermont Securities Regulations

Dear Mr. McCracken:

I write on behalf of the Public Investors Advocate Bar Association (“PIABA”), an international bar association comprised of attorneys who represent investors in disputes with the securities industry. Since its formation in 1990, PIABA has promoted the interests of the public investor in all securities and commodities arbitration forums, while also advocating for public education regarding investment fraud and industry misconduct. Our members and their clients have a strong interest in rules promulgated by both state and federal securities regulators relating to both investor protection and disclosure. As such, PIABA frequently comments upon proposed rule changes and retrospective rule reviews in order to protect the rights and fair treatment of the investing public.

Background

We understand the Department of Regulation is proposing changes regarding, among other things, the addition of a requirement that Vermont-domiciled investment advisers controlling client funds carry errors and omissions insurance. Specifically, the requirement adds to the protection of customers by increasing the monetary protections above the much lower minimum adjusted net worth requirements currently in the Rule. PIABA supports this amendment.

Discussion/Position

PIABA applauds the Department of Regulation’s proposal to require all member firms to maintain appropriate liability insurance. The proposal addresses the long-standing and well-documented problem of unpaid arbitration awards, which continues to plague the financial services industry and harm investors in every state, including Vermont. Justice requires that investors harmed by financial professionals and their firms are not left injured and without practical remedy merely because they were doing business with, what turned out to be, a thinly-capitalized advisor. PIABA believes that the interests of protecting investors could be advanced even more if Vermont required insurance more generally for financial advisors operating within the state. While the DFR’s survey of Vermont-registered investment advisers ahead of its rule proposal concluded it is common for Vermont investment advisers to maintain E&O insurance, many RIA firms across the country operate without any liability insurance, and some even structure themselves with no intention to ever satisfy adverse arbitration awards.

PIABA has written extensively on this problem in the past. Attached to our Comment Letter is a recent article from PIABA’s immediate past president, Adam Gana, and Professor Benjamin Edwards, entitled “The Insurance Solution for Financial Advice Failures.” We echo our members’ voices here. As PIABA has advocated over the years, requiring financial services providers to carry insurance solves several problems simultaneously, including but not limited to:

Insurance ensures recoverability. It dramatically reduces the number of unpaid awards by providing an external funding source when a firm fails or disappears. See, e.g. Vermont’s Department of Financial Regulation’s In Re: Thomas Chadwick et. al., NO. 22-011-S.
Insurance enforces discipline. Insurers price risk. They require firms to implement compliance programs, reject known bad actors, and avoid risky behaviors that lead to claims. In effect, insurers act as a private market discipline mechanism.
Insurance is commonplace and feasible. States like Oregon and Oklahoma already require investment advisers to carry insurance. Major custodians like Schwab and Fidelity have also implemented insurance mandates for firms on their platforms. These requirements have not reduced access to financial advice, and the number of advisers in those jurisdictions increased post-implementation. [1]
The market supports implementation. Empirical data show that requiring even modest insurance coverage (e.g., $1 million per firm) does not drive professionals from the industry.[2] If anything, mandatory insurance can enhance investor trust and attract more business to reputable, well-insured firms.

Vermont’s leading effort to add errors & omission requirements pursuant to V.S.R. § 7 aligns with longstanding efforts within Congress, North American Securities Administrators Association (NASAA), and the SEC to address unpaid awards. Futhermore, Vermont’s proposal aligns with the broader, national sentiment and positions on this investor protection issue.

In sum, PIABA supports the amendments, and thanks the Commission and FINRA for the opportunity to comment on these proposals.

Sincerely,

Michael C. Bixby, President

Public Investors Advocate Bar Association

Attachment

[1] See Chuan Qin & Craig McCann, RIA Insurance Mandates Didn’t Reduce Access to Advisory Services, SLCG ECON. CONSULTING, https://www.slcg.com/resources/blog/713 (last visited Aug. 28, 2024

[2] Id.

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See how PIABA has helped protect others in investment disputes within the securities industry.

“The resources and networking opportunities provided by PIABA have been instrumental in my career development. When I was new to the practice, I was surrounded by mentors and friends who were always willing to help. Over the 12+ years I have been a member, PIABA has consistently been my most valuable support. As an experienced lawyer, PIABA offers leadership roles and opportunities to give back by mentoring the next generation of attorneys in this area. You won’t regret getting involved.”

Meyer Wilson Werning

Courtney M. Werning, Esq. | Principal

“I have been a PIABA member since the year of its founding in 1991. For 33 years PIABA has been an unparalleled source of information and ideas, and remains an integral part of my law practice. More important, I count many of its members as my friends. PIABA has greatly enriched my life, both professionally and socially.”

Leonard Steiner

STEINER & LIBO

“Piaba has been instrumental to the growth of my career. I have made lifelong friends and have attended every annual meeting for the last 15 years. The list-serve, the dedication of its members and its national reach is the gold standard for any bar association.”

Gana Weinstein

Adam J. Gana | Managing Partner

“PIABA is the greatest bar association I have had the privilege of being a part of. PIABA and its membership have been instrumental in my growth and development as a securities litigation attorney in representing and fighting for investors. As a member of PIABA you will find many attorneys across the country who are willing to help you from sharing practice tips to arguments. There is no organization doing more good for the investing public than PIABA.”

Michael C. Bixby

Bixby Law PLLC | Founder & Managing Attorney