Several states are moving ahead with (or exploring) a fiduciary standard in light of the federal governments on-again, off-again rule of its own.
Nevada is the latest, with the sin state looking to regulate the advice delivered by broker-dealers and advisors within its borders.
The draft proposal released by Nevada’s Secretary of State Office serves as a call for written comments from interested parties by March 1, 2019.
Fiduciary duty of broker-dealer and sales representatives
According to the draft document, a “broker-dealer or a sales representative who provides investment advice to clients, manages assets, performs discretionary trading, utilizes a title or terms set forth in section 5.4 below, or who otherwise establishes a fiduciary relationship with clients, I was a fiduciary duty to their clients.”
The fiduciary duty imposed upon a broker-dealer or sales representative includes the time period during which the broker-dealer or sales representative:
- Provides investment advice
- Performs discretionary trading
- Maintains assets under management
- Acts in a fiduciary capacity towards the client
- Disclose his fees or gains
- Through the completion of any contract; and
- Through the terms of engagement of Sears services.
Investment advice includes, but is not limited to:
- Providing advice for a recommendation regarding the buy, hold, or sale of a security to a client;
- Providing advice or a recommendation regarding the value of a security to a client;
- Providing analyses or reports regarding a security to a client;
- Providing account monitoring for the purpose of potentially recommending a buy, hold, or sale of a security;
- Providing advice or a recommendation regarding the type of account a client should open;
- Providing advice or a recommendation regarding the fee options available for the services provided by the investment advisor, representative of an investment advisor, broker-dealer, or sales representative;
- Providing information on a personalized investment strategy;
- Providing a financial plan that includes consideration of buying, holding, or selling a security;
- Providing a limited list of securities for consideration by a client or by a limited group of clients that is tailored to the client or group of clients;
- Providing information about a security that is not provided in the offering document or is an opinion regarding the security or its potential performance;
- Recommending a broker-dealer, sales representative, investment advisor, representative of an investment advisor, or financial planner; and
- Providing advice or a recommendation regarding an insurance product or an investment by comparison to a security, or that includes the buy, sale, or hold of a security.
So, what is considered a breach of fiduciary duty by the Silver State?
The broker-dealer of advisor:
- Fails to perform adequate and reasonable due diligence on a product or investment strategy prior to transacting sale or providing investment advice;
- Recommends to a client a security or an investment strategy that is not in the client’s best interest, or the recommendation or sale deviates from firm policies, offering limitations, or other law;
- Provides investment advice on a product or investment strategy without understanding or conveying all risks or features of the product or investment strategy;
- Puts their own interest, or other clients’ interests, or the firm’s interests ahead of the client;
- Fails to provide current offering documents on the product prior to execution of the transaction;
- Fails to disclose that a recommended product was a proprietary product or that the advice was based upon a limited pool of products, or fails to convey all material risks or features of the product;
- Fails to adequately disclose all information regarding a potential conflict of interest;
- Fails to comply with best execution rules;
- Recommends or sells a security without disclosure of a bad actor disqualification as defined in Regulation D, rule 506;
- Recommends or charges a fee that is unreasonable;
- Violates an applicable FINRA rule or other applicable self-regulatory organization rule that relates to client communication or disclosure;
- Limits the availability of securities to certain clients unless based upon a client’s investment goals, a client’s investment strategy, a firm’s limitation of quantity or type of investment that can be sold to a client, or the security’s own sales limitations.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.