Nevada Forges Ahead with a Fiduciary Standard

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.