A group consisting of 12 separate financial services trade associations – including SIFMA, ACLI and the U.S. Chamber of Commerce – have highlighted both preemption issues and legal deficiencies with Nevada’s proposed fiduciary regulation that they say goes “well beyond” the state’s legal authority.
“We find there to be conflicts with the National Securities Markets Improvements Act (NSMIA), the Advisers Act, the Employee Retirement Income Security Act of 1974 (ERISA) and the Federal Arbitration Act, among others,” the letter states.
The group also contends that the regulation should not impose an ongoing fiduciary duty on broker-dealers and their agents, and that the exemptions to the fiduciary duty list is overly broad.
Moreover, the letter points out that the SEC is close to finalizing its own Regulation Best Interest standard, and encourages the state regulators to await the final federal rule before moving forward to ensure that the regulations “do not unnecessarily duplicate or conflict” with the federal standard.
“If you decide not to wait on the SEC, we would suggest you clarify that firms that comply with Reg BI, once adopted, will be deemed to be fully compliant with the Nevada law,” the group recommends.
The American Retirement Association provided a separate comment letter on March 1.
Background
Nevada’s Office of the Secretary of State, Securities Division, released draft regulations on Jan. 18 based on legislation enacted by the state’s legislature in 2017 – the first of several states to do so.
The legislation revised the Nevada Securities Act to mandate that any “broker-dealer, sales representative, investment adviser or representative of an investment adviser shall not violate the fiduciary duty toward a client” imposed by another statute, NRS 628A.010, which imposes the “duty of a fiduciary” on all financial planners.
However, the legislation also modified the definition of “financial planner” to remove what had been an exclusion from that category for broker-dealers and their representatives and investment advisers and their representatives.
The 2017 legislation also gave the Nevada securities administrator authority to further define the fiduciary duty by defining certain acts as violations or exclusions from the duty and prescribing “means reasonably designed to prevent” violations of acts defined as a violation of the duty.
