Recent State Fiduciary Duty Developments

We have updated our State Fiduciary and Best Interest Developments chart to reflect regulatory changes in New Jersey. The New Jersey Bureau of Securities has proposed a rule that will establish a fiduciary standard for broker-dealers and clarify the standard applicable to investment advisors. The comment period on the proposal ends on June 14; we anticipate that the regulation will become effective later in 2019. (Details of the proposal may be found in the chart.) The proposal is part of New Jersey governor Murphy’s aim to provide strong consumer protections. That objective also led Gov. Murphy in the last few days to veto legislation that would have eliminated a fiduciary standard for insurance producers.

We are also delighted to announce the expansion of the Drinker Biddle Best Interest Compliance Team by the addition of a team of attorneys with experience in litigation involving retirement and health benefits, especially in defending class action lawsuits. The new members of the Team are: Kimberly A. Jones, James F. Jorden, Glenn Merten, Gregory Ossi, Waldemar J. Pflepsen, Jr. and Michael A. Valerio.

Please contact us if you have questions about state developments or other issues that affect your business.

The Robare Ruling Regarding “May” Disclosures and “Willfulness”

The SEC continues to intensify its focus on investment advisers’ disclosures on Form ADV, including issues such as revenue sharing arrangements. A recent D.C. Court of Appeals decision finding that the use of the word “may” in such a disclosure violated the Investment Advisers Act of 1940 could have significant ramifications for investment advisers and the SEC’s Division of Enforcement going forward.

Read the full blog post.

SEC Issues Risk Alert Regarding Reg S-P, Privacy, Safeguarding, and Registrant Compliance

The SEC’s OCIE recently issued a Risk Alert focusing on compliance issues related to Regulation S-P, the primary SEC rule governing compliance practices for privacy notices and safeguard policies for investment advisers and broker-dealers. The Risk Alert summarizes the OCIE’s findings from two-year’s worth of issues identified in deficiency letters to assist investment advisers and broker-dealers in adopting and implementing effective policies and procedures for safeguarding customer records and information pursuant to Regulation S-P.

In this alert, partner Jim Lundy outlines the Regulation S-P requirements, the OCIE’s Regulation S-P findings and key takeaways for SEC registrants.

Updated State Fiduciary and Best Interest Developments Chart

We have updated our state fiduciary/best interest developments chart. We are still waiting for finalization of the Nevada rules on the fiduciary duty for broker-dealers and investment advisors and the effective date of the New York rules on the sale of annuities and life insurance. In the meantime, though, Maryland and Massachusetts have stepped in with new developments.

Continue reading “Updated State Fiduciary and Best Interest Developments Chart”

The DOL’s Temporary Enforcement Policy: Potential Traps for the Unwary

The overturning of the DOL’s Fiduciary Rule by the Fifth Circuit last year had two impacts: first, the definition of “fiduciary” for investment advice to plans and IRAs reverted back to the narrower Five-Part Test issued in 1975; second, the Best Interest Contract Exemption (or “BIC Exemption”) and amendments to other exemptions also ceased to exist.

Continue reading “The DOL’s Temporary Enforcement Policy: Potential Traps for the Unwary”

The First SEC Share Class Selection Disclosure Settlements: What We Learned & What’s Next?

Jim Lundy and Ben McCulloch authored an article entitled “The First SEC Share Class Selection Disclosure Settlements: What We Learned & What’s Next?” for the Investment Adviser Association’s IAA Newsletter Compliance Corner. In the article, Jim and Ben discuss the first wave of settlements under the SEC’s SCSD Initiative as well as lessons learned. They also explore the agency’s ongoing efforts regarding the remaining participants, consequences for firms who opted not to self-report, and the Division of Enforcement’s continued scrutiny of revenue sharing arrangements, disclosures, and conflicts.

Read the full article.

*Originally published in the IAA Newsletter, April 2019

SEC Releases SCSD Self-Reporting Initiative Settlements

The SEC recently announced its first round of settlements with registered investment advisors (RIAs) who had self-reported pursuant to the agency’s Share Class Selection Disclosure Initiative (SCSD Initiative). Additional RIA settlements pursuant to the SCSD Initiative are expected, and RIAs who did not self-report face additional scrutiny from the Division of Enforcement. Industry reaction has involved frustration, but the SEC’s focus on RIA conflicts of interest, disclosures, and more recently revenue sharing is increasing.  Jim Lundy and Mary Hansen discuss these developments in this article, SEC Releases SCSD Self-Reporting Initiative Settlements.

State Fiduciary and Best Interest Developments

A number of states are seeking to impose fiduciary or best interest requirements on broker-dealers, investment advisers, financial planners and/or insurance brokers and producers in their dealings with customers. While the rules vary from state to state, they are in addition to – and sometimes inconsistent with – federal requirements being considered by the SEC or by the Department of Labor for retirement investment advice. We have prepared a chart summarizing the activities in each state along with proposals of the National Association of Insurance Commissioners (NAIC), which we update periodically as needed. You may access the chart here.

Nevada Proposes Fiduciary Regulations

Nevada has released a proposed regulation to regulate broker-dealers and their advisors as fiduciaries. In 2017, the state amended its securities law to provide that broker-dealers and investment advisers owe a fiduciary duty to their customers, but the change didn’t provide details on what that meant. Instead, the legislation required that a regulation be issued to explain and implement the change. Nearly a year and a half later, a proposed regulation has been released.

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Alert: FINRA’s 529 Plan Share Class Initiative to Self-Report

On January 28, 2019, FINRA released its Regulatory Notice 19-04 announcing its 529 plan self-reporting initiative. This initiative is part of FINRA efforts to have broker-dealers promptly remedy potential supervisory and suitability violations related to recommendations of share classes for 529 plans. Continue reading “Alert: FINRA’s 529 Plan Share Class Initiative to Self-Report”