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Legislative & Regulatory Update: June 2018

Jun 05, 2018

The Senior Safe Act Signed Into Law 
Signed into law on May 24 by President Trump following bipartisan passage in both houses of congress, the “Senior Safe Act” will encourage financial service providers to report suspected financial abuse of elders through the promise of immunity. Predicated on the belief that financial advisors and bank employees are among the most likely to witness the financial exploitation of older Americans, the new law encourages banks, savings and loans and other financial service providers to train staff to report suspected financial abuse of seniors, which various advocacy groups believe ranges in the neighborhood of $3 billion per year. The new law will provide immunity to “covered financial institutions” from federal privacy provisions. Covered institutions include credit union depository institutions, investment advisors, broker-dealers, insurance companies and agencies, as well as transfer agents. 

SEC Regulation Best Interest Comment Period Open  
Following the apparent demise of the Department of Labor’s fiduciary rule in the U.S. Fifth Circuit Court of Appeals (the formal order that will vacate the rule has yet to be issued by the court), the Securities and Exchange Commission has promulgated a package of proposals intended to provide greater protection to retail investors, including a “Regulation Best Interest” for broker-dealers when dealing with retail customers. 

The SEC’s proposal would establish a higher standard of care and disclosure for broker-dealers, but it would not create an explicit fiduciary duty, which many in the financial services community believe is unworkable. Instead, under the proposed regulation, broker-dealers would be required to act in the “best interest” of their retail clients and would be prohibited from placing their interests ahead of these clients. The SEC seeks to preserve commission-based compensation in its proposals, which they explicitly noted benefits many retail investors. The SEC also acknowledged in their proposals that there are inherent conflicts of interests “embedded” in the relationship between broker-dealers and their customers, but rather than seek to prohibit such conflicts, the SEC proposals introduce more rigorous requirements to manage and disclose these conflicts. 

The SEC’s proposed regulations are complex and require greater review. However, ADISA continues to advocate for a fair and reasonable regulation that would provide greater protection for retail investors while continuing to allow personal choice and broad access to financial advice. ADISA is in the process of preparing a comment letter in regards to Regulation Best Interest, and encourages our members to participate in the comment process as well. The SEC’s 90-day comment period ends on August 7, 2018.

Nevada Fiduciary Law Update  
With the passing of Senate Bill 383 last year, Nevada imposed a statutory fiduciary duty on broker-dealers and investment advisers. Subsequently, the Administrator of the Nevada Securities Division was authorized to adopt regulations defining acts, practices or courses of business that violate what is commonly referred to as the Nevada fiduciary law. ADISA co-signed two letters to the Nevada Securities Administrator, Diana J. Foley, Esq., regarding this legislation and appeared in delegation before the administrator in late September 2017 to discuss proposed regulations. These regulations have a deadline of June 30, which is quickly approaching, for the issuance of the rule, or rules, but it remains unclear whether it will be permanent or temporary. It is also unclear if a comment period will be included, since technically the securities administrator has met the statutory requirement for a public hearing with the one previously held and can therefore issue rules without further comment periods or meetings. ADISA has particular interest in Nevada, as roughly 40 members reside there, mostly running small businesses. ADISA also holds its Annual Conference & Trade Show every fall in Las Vegas, and several employees of the Division have observed our conferences in the past. We will continue to monitor the situation and keep you informed as things progress.

IRC Section 199A – ADISA Co-signs Letter to Treasury on LKEs 
ADISA has co-signed a letter with the Federation of Exchange Accommodators (FEA) and other coalition partners that will be submitted to the Department of the Treasury regarding Section 1031 like-kind exchanges and IRC Section 199A of the Tax Cuts and Jobs Act. IRC § 199A provides a deduction to individuals, trusts and estates of up to 20 percent of qualified business income received from a pass-through trade or business, such as an S corporation, partnership (including an LLC taxed as a partnership) or sole proprietorship. The letter will encourage Treasury officials to recognize in its rule making and interpretation of the law that “unadjusted basis immediately after acquisition,” as stated in IRC § 199A, should not inhibit or impair a taxpayer’s decision to engage in 1031 exchanges and should include the cost of qualified property, regardless if it is a like-kind exchange. The letter summarizes and supports this argument through economic studies and sample illustrations.