PLANADVISER - March/April 2019 - 13

State-Based Fiduciary Standards
Some legislators and regulators act to fill a perceived void
EVEN before the Department of Labor
(DOL) signaled under President Donald
Trump that it would not be defending
the Obama-era DOL fiduciary rule
expansion-which was vacated in
mid-2018 by a U.S. circuit court-a
number of state governments had
already begun the process of implementing
their own conflict-of-interest
rules for financial advisers and broker/
dealers (B/Ds).
But the surprise court defeat of
the DOL fiduciary rule, which would
have greatly expanded the number of
advisers considered to be fiduciaries
under the Employee Retirement Income
Security Act (ERISA), accelerated such
state-based efforts and has led to more
states pushing to fill a perceived void
created by federal deregulation.
According to written commentary
shared by attorneys with Stradley
Ronon, regulators and legislators in
Maryland, Nevada, New Jersey and
New York, among others, are currently
implementing stricter standards for
advisers and brokers operating in their
respective jurisdictions.
One of the newest efforts kicked
off this past October 15, when the
New Jersey
Bureau
of
Securities
issued a notice of pre-proposal to
solicit comments on whether to adopt
rule amendments that would require
broker/dealers, sales agents, investment
advisers and investment adviser
representatives to be subject to " an
express fiduciary duty. " The New Jersey
notice highlighted concerns that investors
are " often unaware of whether
and to what extent those they trust
to make financial recommendations
are receiving undisclosed financial
benefits in exchange for steering their
clients to certain products. "
According to Stradley Ronon attorneys,
the pre-proposal did not include
specific rule language, but the bureau
did indicate it was considering " making
it a dishonest or unethical business
practice for failing to act in accordance
with a fiduciary duty when recommending
to a customer an investment
strategy or the purchase, sale
or exchange of any security or securities,
or providing investment advisory
services to a customer. "
State Timelines May Shift This Year
Generally speaking, state-based fiduciary
rule implementation timelines
across the U.S. could be either extended
or accelerated this year, depending
on if and when the Securities and
Exchange Commission (SEC) finalizes
its own advisory standards reform
effort. Last April, the SEC released a
" Regulation Best
Interest " proposal
aimed at creating a unified conflict
of interest mitigation standard for all
TALKING POINTS
Retirees' Goals
Retirees' No. 1 financial objective is to have
peace of mind, followed by to maintain
an acceptable quality of life, to manage
day-to-day expenses, to reduce debt and
to have a plan to convert assets into a
stream of income.
Source: T. Rowe Price
Plan Sponsors' Goals
Plan sponsors' top three goals for this
year are to expand financial well-being
programs, to keep retirees' assets in the
plan and to locate missing participants.
Source: Alight
planadviser.com March-April 2019 | 13
brokers and advisers-not just those
working under ERISA. During a recent
speech, SEC Chairman Jay Clayton
said the investment market regulator
has made it a priority to finish work on
its Regulation Best Interest proposal
this year.
Another factor that could affect
states' timelines, according to Stradley
Ronon attorneys, is that state legislatures
that were reshaped to favor
Democrats in the 2018 elections could
choose to move faster in the direction
of
strengthening
conflict-of-interest
regulations. As an example, they point
to New York Assemblyman Jeffrey
Dinowitz and his previous, unsuccessful
introduction of the Investment
Transparency Act. -John Manganaro
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PLANADVISER - March/April 2019

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