Silver State Advisors, BDs Facing New Fiduciary Standard

With little fanfare and precious little notice, come July 1, 2017, broker-dealers and advisors doing business in Nevada will be subjected to a new fiduciary standard.

Senate Bill 383signed into law by Nevada 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 from the exclusion for broker-dealers and their representatives, and investment advisers and their representatives.

According to an analysis by Greensfelder, Hemker & Gale, P.C., NRS 628A.010 imposes two specific duties. First, financial planners shall “disclose to a client, at the time advice is given, any gain the financial planner may receive, such as profit or commission, if the advice is followed.” Second, it requires financial planners to “make diligent inquiry of each client,” at the beginning of the relationship and on an ongoing basis, to ascertain the client’s financial condition and present and future goals and obligations.

Senate Bill 383 gives 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. However, any rulemaking under this authority will only apply to broker-dealers and their representatives and investment advisers and their representatives, and not to any other financial planners.

The analysis notes that under Nevada law, investors may sue financial planners for “the economic loss and all costs of litigation and attorney’s fees” that result from following a financial planner’s advice where the planner violated the fiduciary duty, was “grossly negligent” in offering the financial advice, or otherwise violated Nevada law in “recommending the investment or service.”

Under Nevada law, a financial planner is “a person who for compensation advises others upon the investment of money or upon provision for income to be needed in the future, or who holds himself or herself out as qualified to perform either of these functions.” Senate Bill 383 does not remove the current exclusions from the definition of financial planner for attorneys, CPAs, and insurance producers.

The National Association of Plan Advisors and the American Retirement Association are already working on an exemption for ERISA plans.

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One Comment

  1. url url'>Terrance Power
    Posted June 20, 2017 at 10:56 am | Permalink

    A patchwork of laws being enacted by individual states does no one any good. Just like the ill-advised state/city plans for private sector employers didn’t either.

    Some things are best overseen on a national basis. This is one of them.

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