ADISA Submits Own Letter and Co-Signs Coalition Letter on Draft Regulations Pertaining to Nevada's Proposed Fiduciary Duty Regulation

Feb 27, 2019

In response to Nevada Secretary of State's Office Securities Division's for comments on Nevada's draft fiduciary duty regulations, ADISA submitted its own letter, as well as signed on to an industry coalition letter, expressing key concerns. 

ADISA's comment letter drew attention to the following:

  1. Availability of "Episodic Fiduciary Duty Exemption," contained in Section 2 of the proposed regulations, and notes that several proposed limitations on the availability of the "Episodic Fiduciary Duty Exemption" all but remove the ability for clients to benefit from products or services where there is no on-going advice nor the expectation of on-going advice or an on-going duty by requiring most, if not all, broker-dealers to comply with the full panoply of requirement applicable to firms and persons who have a full (and on-going) fiduciary duty under the proposed regulations. The exemption should be tailored to ensure that broker-dealers and their representatives who recommend transactions on an infrequent basis are fully eligible for the exemption and can align their conduct -- and their fees -- fully with all aspects of the proposed regulations.
  2. The SEC is close to finalizing its own Regulation Best Interest standard, which would, as proposed, establish a uniform "best interest" standard for broker-dealers. ADISA believes a national standard, if adopted, would provide enhanced investor protection and be easier to administer than a series of individual state law and regulations. ADISA previously submitted a comment letter to the SEC that is generally supportive of the agency's proposed approach.

ADISA's letter was drafted by John Grady, DLA Piper; Tom Rosenfield, HillStaffer; Larry Sullivan, Passco Companies; and Catherine Bowman, The Bowman Law Firm. You can read the letter in its entirety here.

The coalition letter to Nevada’s Secretary of State’s Office highlights these key universal concerns:

  1. The SEC is close to finalizing its own regulation best interest (RBI) standard, and encourages Nevada to await the final federal rule before moving forward with its own.
  2. The draft regulations continue to raise pre-emption and other legal concerns, and conflicts with the National Securities Markets Improvements Act (“NSMIA”), the Advisers Act, the Employee Retirement Security Act of 1974 (“ERISA”) and the Federal Arbitration Act, among others.
  3. The draft regulations would likely accelerate the move from brokerage to fee-based accounts and would impose a presumption that a broker-dealer owes a fiduciary duty and characterize many routine client interactions as triggering such a duty.
  4. Institutional investors and sophisticated governmental entities should be expressly excluded, and the draft regulations make no distinction between natural persons, institutional investors, and certain sophisticated governmental entities despite the foundational differences between these group.
  5. Annuities should similarly be excluded from the regulation, which defines “investment advice” that would be subject to the proposed fiduciary standard.
  6. The regulations should limit the law’s scope to customers with Nevada domiciles.
  7. The regulations should not impose on ongoing fiduciary duty on broker-dealers and their agents. The draft regulations would, in most instances, create an ongoing fiduciary duty which would, among other things, require monitoring the performance of customer accounts.
  8. The exemptions to the fiduciary duty standard are too narrow, and the exemptions seem to be overtaken by the exceptions
  9. The breach of fiduciary duty list is overly broad, and the list should be substantially narrowed.
  10. Final regulations should include a reasonable implementation period and effective date, and the associations recommend an implementation period of at least 18 months, with an initial effective date thereafter.

The other financial organizations who also submitted comments include:
Center for Capital Markets Competitiveness
Financial Services Institute
Institute for Portfolio Alternatives
Insured Retirement Institute
Money Management Institute
NAIFA Nevada
Nevada Bankers Association
Small Business Investor Alliance

You can read the letter in its entirety here.