What Happens in Vegas…

The Silver State — with little fanfare and precious little notice — on July 1 enacted legislation that subjects broker-dealers and advisors doing business in Nevada to a new fiduciary standard, and one that explicitly allows the client to sue under state law. And it might inspire similar actions in other states.

Nevada Senate Bill 383, signed into law by Gov. Brian Sandoval (R) on June 2, revises 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, Senate Bill 383 also modifies 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 legislation does give the relevant state administrator broad interpretive authority. Thankfully the new law requires that, before the Securities Administrator issues regulations clarifying what is and is not a breach of the new fiduciary duty, she must be sure her rules do not impose “a direct and significant economic burden upon small business or directly restrict the formation, operation or expansion of a small business.” A “small business” is a for-profit enterprise with fewer than 150 full- or part-time workers.

The American Retirement Association (parent organization of NAPA) has already met with Nevada regulators, and on August 23 filed with those regulators an opinion letter from the law firm of Trucker Huss that presents our strong argument that any Nevada regulation of fiduciary advisory services to employer-sponsored retirement plans and their participants and beneficiaries would not only be preempted by ERISA, but that even if the “savings clause” in ERISA’s preemption provision were somehow interpreted to cover the Nevada regulation of these activities, it would still require the matter to be referred to federal court.

In sum, we believe — and have explained to the Nevada regulators — that by regulating fiduciary advisory services to employer-sponsored retirement plans and their participants and beneficiaries at best the state is providing them with a federal cause of action they are already entitled to while exposing the state to unnecessary and unproductive litigation risk. And, as such, we have made the case that there are strong legal and policy arguments for exempting investment advisory services to ERISA-covered retirement plans and their participants and beneficiaries from the regulations — and that it was the intent of Congress in enacting ERISA to provide a uniform set of national rules and causes of action that should be respected by Nevada in promulgating regulations under the provisions of SB 383.


Click here for more commentary from Brian Graff.


We have also explained that the Department of Labor’s fiduciary regulation has redefined and expanded the definition of investment advice for purposes of being classified as a fiduciary under ERISA, and that that has already resulted in significant changes in the way financial services are delivered to plans subject to ERISA coverage, as well as to the participants and beneficiaries in those plans.

We appreciate the efforts by Nevada-based NAPA members as we work together to protect your business from this, and other unnecessary regulatory intrusions and the predations of the plaintiffs’ bar. And we’ll all need to remain vigilant in the coming months as similar initiatives may come to light.

It is, however, worth acknowledging that concerns about the actions taken by the Trump administration — the postponement of the full applicability date of the Best Interest Contract Exemption (BICE), the proposed further delay of that applicability until July 1, 2019, and even the withdrawal of the Obama administration safe harbor provisions for state-run auto-IRA retirement programs for private sector workers — are leaving retirement savers unprotected, creating a need for the states to step in.

In other words, what happens in Vegas — might not stay there.

Brian H. Graff, Esq., APM, is the Executive Director of NAPA and the CEO of the American Retirement Association. This column will appear in the Fall 2017 issue of NAPA Net the Magazine.

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