Wednesday, March 06, 2019

IAA and SIFMA oppose Nevada’s proposed fiduciary rule

By Jay Fishman, J.D.

The Investment Adviser Association (IAA) and the Securities Industry and Financial Markets Association (SIFMA) have each sent the Nevada Securities Division (the Division) a comment letter opposing the Division’s proposed fiduciary rule for broker-dealers and investment advisers. Both IAA and SIFMA remarked that the proposal would violate certain provisions of the National Securities Markets Improvement Act of 1996 (NSMIA).

IAA. The IAA complained that the proposed rule would violate NSMIA’s Title III on investment advisers by not clarifying that the rule applies only to Nevada investment advisers. Specifically, the rule’s initial reference to “investment advisers” incorrectly implies that it also covers SEC investment advisers, which NSMIA forbids. IAA emphasized that NSMIA allows the states only limited authority over SEC investment advisers: (1) to require SEC advisers’ investment adviser representatives with a place of business in the state to register and pay a filing fee; (2) to require SEC advisers to file a notice consisting of their SEC-filed documents and a notice filing fee; and (3) to investigate and bring enforcement actions against SEC advisers for fraud.

The IAA suggested the following replacement language be made to the draft to eliminate the suggestion that the rule regulates SEC advisers in violation of NSMIA:
  1. The term “investment adviser” in these regulations does not include any “federal covered adviser,” as defined in NAC 90.042; or
  2. The term “investment adviser” in these regulations refers to an investment adviser required to be licensed pursuant to NRS 90.330. 
SIFMA. SIFMA strongly advised the Division to shelve the proposal until the SEC develops and finalizes Congress-mandated federal regulations to meaningfully raise the bar for broker-dealers providing personalized investment advice to retail customers about securities. SIFMA acknowledged that promulgating standard of conduct laws and rules at the state level is well intentioned but would ultimately result in conflicting standards and less investor access to information and choice of products. Specifically, states attempting to create their own fiduciary rules would introduce a new level of investor confusion, which would undercut not only the SEC’s promulgation of a uniform, nationwide, heightened best interest standard of conduct for broker-dealers but would also undercut investor protection generally. Moreover, exclaimed SIFMA, Nevada’s proposed rule would significantly run the risk of driving the movement for a fee-based business model, which small investors particularly would not be qualified for, and many Nevada investors would likely suffer the inability to access brokerage accounts, as well as a broker-dealer’s financial advice.