Monday, January 28, 2019

Nevada first state to draft fiduciary duty rules

By Jay Fishman, J.D.

The Nevada Securities Division has proposed fiduciary duty regulations following the Nevada Legislature’s 2017 enacted law imposing a fiduciary duty on financial planners, and prohibiting broker-dealers and sales representatives from violating the imposed fiduciary duty. Interested persons have until March 1, 2019 to submit written comments about the proposals to Diana Foley at the Nevada Secretary of State’s Office, Securities Division, 2250 Las Vegas Boulevard North, Suite 400, North Las Vegas, NV 89030.

Fiduciary duty rule highlights. Highlights of the proposed rules include:
  • Imposing a fiduciary duty on broker-dealers, sales representatives, investment advisers and investment adviser representatives during the time they: (1) provide investment advice to clients, (2) manage client assets, (3) discretionarily trade client accounts, (4) act in a fiduciary capacity toward the client, and (5) disclose fees or gains—through the completion of any contract and through the term that services are engaged; and
  • Creating an “episodic fiduciary rule exemption” which initially imposes a fiduciary duty on broker-dealers and sales representatives related to their providing specific investment advice to a client, but ends once the client receives the advice, the transaction completes (if applicable), and the required fee and gain disclosures are made; this exemption can only apply, however, if the respective broker-dealers or sales representatives do not manage the client’s assets, or engage in other prescribed activities for the client. 
The proposed rules additionally set forth conduct that breaches the fiduciary duty, as well as conduct that is not per se a violation, along with those activities that exempt broker-dealers and sales representatives from the fiduciary duty. Lastly, a proposed rule authorizes the Nevada Administrator to, by order, adopt any fiduciary duty-related rule, exemption, form, or prohibition that the SEC has approved, provided the Nevada adoption does not materially diminish Nevada’s statutory fiduciary duties.