While the SEC’s pending best interest proposal is further delayed by the government shutdown, several individual states are moving ahead with their own fiduciary proposals.
Last Friday, Nevada Securities Division introduced a fiduciary rule to implement legislation that had passed in mid-2017, and is soliciting public comment until March 1. The proposed rule, however, allows the “Administrator” to adopt the SEC’s “fiduciary duty-related rule” so long as the SEC’s regulation “doesn’t materially diminish the fiduciary duty” included in the Nevada statutes.
The rule covers broker-dealers and sales representatives who provide investment advice, manage client assets, perform discretionary trading or otherwise establish a fiduciary relationship, and it defines BDs and sales reps to include even those who call themselves advisors, financial planners, financial consultants, retirement consultants, retirement planners, wealth managers, counselors or “other titles that the Administrator may by order deem appropriate.”
A broker-dealer or sales rep that calls themselves a financial planner or wealth manager would be subject to the fiduciary rule.
The proposed rule allows all of those under its jurisdiction to receive commissions “so long as it is in the client’s best interest to be charged by transaction as opposed to other types of fees” and to sell proprietary products so long as that information is disclosed and other condition are met.
Nevada is likely to be first state to adopt a fiduciary rule, possibly by year- end, according to Andrew Remo, director of legislative affairs at the American Retirement Association. But he expects the final rule will be challenged in court if, like the proposed rule, it does not include a carve-out for retirement plans covered by the federal Employee Retirement Income Security Act of 1974 (ERISA).
“ERISA plans should be carved out of any state-based standard because they are already subject to a federal fiduciary standard,” said Remo.