Fiduciary Regulations Emerging at State Level

by on Jul 27, 2017

The Department of Labor’s Fiduciary Rule has consumed industry attention over the last six months. The rule expands the 1974 ERISA Act’s definition of an investment advice fiduciary and requires advisors to act in their clients’ best interest at all times. The industry’s fixation has only increased since June 9, when phase one of the rule officially took effect. However, while the industry continues to focus on the federal level, and the rule’s January 1 2018 phase two implementation date, individual states are starting to increase their own regulatory standards.

Nevada recently passed Senate Bill 383 that revises the Nevada Securities Act and raises the fiduciary standard in the state. The bill was introduced on March 20, quickly passed both legislative houses, and was signed into law by the state’s republican governor on June 2. It adjusts the definition of what constitutes a financial planner by removing the previous clause that excluded broker-dealers and investment advisors. The rule clearly states that all financial planners have a fiduciary duty to their clients. They must directly disclose any advantage they will gain from pursuing a particular course of action and regularly assess their clients’ financial health and goals.

Further evidence that states will not be left out of the regulatory sweepstakes is found in a June 7 letter to Labor Secretary Alexander Acosta signed by 13 state treasurers thanking him for his stated commitment to implement the Fiduciary Rule. The letter notes that while they come from a diverse coalition of states and perspectives, the treasurers share a core belief that investors must be protected. They urge the secretary to remain committed to a complete implementation of the rule. Other states like New York and California are debating similar fiduciary regulations and it will be intriguing to see how many others follow Nevada’s lead.