State Fiduciary Rules Create a Regulatory ‘Mess’

ERISA attorneys say that the bevy of states that are coming out with their own fiduciary standards are creating a regulatory “mess.” 

“The states are responding to both the inaction of the SEC to come up with a uniform standard and projected action on part of the DOL — mainly [Labor Secretary Alexander] Acosta in rolling back some of the fiduciary rule,” George Michael Gerstein, a lawyer with Stradley Ronon Stevens & Young in Washington, told ThinkAdvisor in a Wednesday interview.

“Because broker-dealers are not subject to a formal federal fiduciary duty, some states may be seeking to impose a state fiduciary duty on them,” added Larry Stadulis, partner at Stradley Ronon. 

For instance, Nevada’s law is unique in that it not only says advisors are fiduciaries when dealing with retirement and non-retirement plans, but “expressly deals with disclosure, recordkeeping, as well as an ongoing duty to monitor that potentially goes beyond, and differs from, what’s required under federal law, though the anticipated regulations should clarify these issues.”

Nevada plans to hold an Oct. 6 workshop to solicit comments on the laws adopted through Senate bill 383, which among other things, imposes a fiduciary duty on broker-dealers and investment advisors.

Added Gerstein: “I hope the anticipated regulations will clarify whether and how Nevada’s newly revised law is intended to differ from current obligations at the federal law [level], whether that be the securities laws or ERISA.”

Gerstein said he’s hearing from clients “there is widespread confusion about what this [Nevada bill] is supposed to mean.

“We’re awaiting the regulations that should help provide a lot of context and guidance” regarding the Nevada law, Gerstein added. The Nevada securities division plans “to work out the details [regarding the clarifying regulations] over the coming months.”

The patchwork of state laws is “a mess in the sense there’s real uncertainty about what brokers and advisors will be expected to do in the states that have introduced [fiduciary] legislation and, ultimately, enact it,” Stadulis said. Advisors and brokers “don’t know what their obligations are under state law. What if they conflict” with DOL or a potential SEC rule. “What do you do?”

As it stands now, fiduciary regulation is in the works in New York, New Jersey, Nevada and Massachusetts.