Nevada imposes statutory fiduciary duty on broker-dealers
A new fiduciary duty will become applicable July 1, 2017, for broker-dealers and investment advisers operating in Nevada —and this fiduciary duty has nothing to do with the Department of Labor.
Senate Bill 383, which Nevada Gov. Brian Sandoval signed June 2, revises the Nevada Securities Act to mandate that any “broker-dealer, sales representative, investment adviser or representative of an investment adviser shall not violate the fiduciary duty toward a client” imposed in a separate statute.
That statute, NRS 628A.020, imposes the “duty of a fiduciary” on all financial planners. Senate Bill 383 also modifies the definition of “financial planner” to remove from the exclusion for broker-dealers, their representatives, investment advisers, and their representatives.
By statute, NRS 628A.020 imposes two specific duties: First, financial planners shall “disclose to a client, at the time advice is given, any gain the financial planner may receive, such as profit or commission, if the advice is followed.” It further requires that financial planners “make diligent inquiry of each client,” at the beginning of the relationship and on an ongoing basis, to ascertain the client’s financial condition and present and future goals and obligations.
In addition to these specific duties, Senate Bill 383 gives the Nevada securities administrator authority to further define the fiduciary duty by defining certain acts as violations or exclusions from the duty and prescribing “means reasonably designed to prevent” violations of acts defined as a violation of the duty. Any rulemaking under this authority will only apply to broker-dealers, their representatives, investment advisers, and their representatives and not to any other financial planners.
Under Nevada law, investors may sue financial planners for “the economic loss and all costs of litigation and attorney’s fees” that result from following a financial planner’s advice where the planner violated the fiduciary duty, was “grossly negligent” in offering the financial advice, or otherwise violated Nevada law in “recommending the investment or service.”
Senate Bill 383 does not disturb the exclusions from the definition of financial planner for attorneys, CPAs, and insurance producers. Under Nevada law, a financial planner is “a person who for compensation advises others upon the investment of money or upon provision for income to be needed in the future, or who holds himself or herself out as qualified to perform either of these functions.”
The effective date of July 1, 2017, provides firms extremely limited time to change compliance procedures and to train employees on any new policies and procedures.
If you have questions about the changes or how best to comply, please contact the attorneys in Greensfelder’s Securities & Financial Services group.
JULY 10, 2017, UPDATE:
The Nevada Securities Division is soliciting comments on what regulations it should promulgate to further define the fiduciary duty that is now applicable to broker-dealers and investment advisers.
The notice lays out something of a timeline:
- The division requests comments addressing whether Senate Bill 383 creates “a direct and significant burden” on small businesses to submit their comments by Aug. 15;
- The division will announce one or more workshops at which formal comments will be sought, but urges broker-dealers and investment advisers to submit their comments sooner;
- The division plans to submit proposed regulations to the Nevada Legislative Counsel Bureau no later than November 2017; and
- The division plans to hold a public hearing on the proposed regulations no earlier than Jan. 1, 2018.
Comments may be submitted electronically at firstname.lastname@example.org.