Skip to content

Broker-Dealer Regulation & Litigation Insights

  • About Us
  • Contributors
  • Resources
  • Presentations
  • Visit the Faegre Drinker website

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.


The proposal surprised many in the broker-dealer community because the definition of “fiduciary” is very broad and the related duties are stringent. The requirements go beyond the proposed SEC rules under Reg BI. However, there is a nod in that direction – the Nevada proposal says the Securities Administrator can adopt by order any “fiduciary duty related rule” approved by the SEC, so long as that rule doesn’t “materially diminish the fiduciary duty” set out in Nevada law and regulation.

Nevada’s proposed regulations are more demanding than Reg BI in several respects. In fact, some of the requirements are similar to those in the DOL’s vacated Best Interest Contract Exemption, though stated in different terms. Here are some differences from the SEC’s proposed Reg BI:

  • One major difference is that Nevada law affirmatively states that broker-dealers owe a fiduciary duty for most of their advice to customers. Reg BI requires that firms act in the best interest of their customers, but doesn’t say they are fiduciaries.
  • Under Nevada law, a customer can sue an advisor (at a broker-dealer or RIA) for breach of fiduciary duty. This is generally referred to as having a “private right of action.” Under Reg BI, there is no private right of action.
  • The Nevada proposal requires a more in-depth disclosure of compensation than Reg BI. For example, a broker-dealer is required to disclose the “gain” it receives at the time advice is given. “Gain” is defined to include managed asset fees, commissions, mark up and mark down commissions, volume discounts given to clients, trailing fees or commissions, front end or back end loads, service fees, and payments for order flow. In contrast, Reg BI appears to require generic disclosures of the types of compensation and the amounts generally charged.
  • The Nevada proposal makes clear that a broker-dealer has a fiduciary duty to monitor a customer’s account under several common scenarios, while that is not required by proposed Reg BI. The Nevada proposal explains this monitoring requirement in a circular way. It provides for an “Episodic Fiduciary Duty Exemption,” which says that a broker-dealer has a fiduciary duty for a specific transaction, but does not have an ongoing duty — so long as it does not provide certain services or communications. However, that exemption doesn’t apply in the following scenarios: managing the customer’s assets, creating periodic financial plans, discretionary trading of the account, or a representative of a broker-dealer identifying as an adviser, financial consultant, wealth manager or counselor. There are two other situations that make the Episodic exemption unavailable: if a broker-dealer has not “otherwise developed a fiduciary relationship with the client from previous or concurrent services undertaken on behalf of the client” or if the surrounding facts and circumstances don’t indicate that ongoing advice is “reasonably expected by the client relative to [a] transaction, type of product or advice.” The latter might exist, for example, if an advisor were to tell a customer that “I’ll keep an eye on your account” or “Don’t worry, I’ll watch out for you.”

This is a proposal, and it may change before it becomes final. However, if it remains the same, the Nevada proposal will go beyond what the SEC is proposing, and it may be an indication of what we can expect in the future in other states.

The Drinker Biddle Best Interest Compliance Team has put together a chart of state investment fiduciary activity, which can be accessed here.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

Subscribe and Receive Alerts to New Articles

SUBSCRIBE
February 6, 2019
Written by: Fred Reish
Category: Fiduciary, Fiduciary Duty

Post navigation

Previous Previous post: Alert: FINRA’s 529 Plan Share Class Initiative to Self-Report
Next Next post: State Fiduciary and Best Interest Developments

Subscribe to Alerts

Recent Posts

  • Managing IRAs: Charging Different Fees for Different Investments
  • FINRA Is Conducting a Targeted Exam of “Crypto Assets”
  • Recent State Fiduciary and Best Interest Developments
  • Rollover Recommendations – Do the SEC and DOL Requirements Align?
  • Broker-Dealer Regulation & Litigation Digest – Summer 2022

Categories

  • 12b-1 Fees
  • 3270
  • 3280
  • 3290
  • Anti-Money Laundering
  • Arbitration
  • BD
  • Best Execution
  • Best Interest Contract Exemption
  • Best Interest Standard of Care
  • Business Continuity Planning
  • Churning
  • Class Certification
  • Compensation Issues
  • Compliance
  • Concurrent jurisdiction
  • Conflicts of Interest
  • Congress
  • Covered class actions
  • Covered securities
  • Credit
  • Cryptocurrencies
  • Customer Due Diligence Rule
  • Customer Protection
  • Cybersecurity
  • Dark Pools
  • Data Integrity
  • DOL Fiduciary Rule
  • Elder Abuse
  • Enforcement
  • Event Study
  • Examination
  • Exchange-Traded Funds (“ETF”)
  • exemptions
  • Fair Pricing
  • Fees
  • Fiduciary
  • Fiduciary Duty
  • Financial Services
  • FinCEN
  • FINRA
  • FINRA 2018 Annual Regulatory and Examination Priorities Letter
  • FINRA 360
  • FINRA Code of Arbitration Procedure 12204
  • FINRA Code of Arbitration Procedure 13204
  • FINRA Notice 13-45
  • FINRA Regulatory Notice 16-25
  • FINRA Rule 12200
  • FINRA Rule 13200
  • FINRA Rule 2111
  • FINRA Rule 2165
  • FINRA Rule 2232
  • FINRA Rule 3310(c)
  • FINRA Rule 4210
  • FINRA Rule 4512
  • FINRA Summary Report
  • Fixed Income
  • Fraud
  • Goldman v. City of Reno, 747 F.3d 733(2014)
  • Goldman v. Golden Empire Schools Financing, 767 F.3d 210(2014)
  • IA
  • Impartial Conduct Standards
  • In the Matter of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Respondent (AWC 2009020188101/January 25, 2012)
  • Initial Coin Offerings
  • Investment Recommendation
  • Investor
  • IRA
  • Liquidity
  • Manipulation
  • Margin
  • Market Access
  • Market Access Controls
  • Mortgage
  • Mutual Funds
  • New FINRA Rule
  • OCIE
  • Office of the Solicitor General
  • Options
  • Outside Activities
  • Outside Business Activities (“OBA”)
  • Policies and Procedures
  • Price Impact
  • Private Securities Transactions (“PST”)
  • Private Securities Transactions of an Associated Person”
  • Prohibited Transactions
  • Prudence
  • Quantitative Suitability
  • Reading Health v. JP Morgan, No. 16-4234 (3d Cir. Aug. 7, 2018)
  • Reasonable Fees
  • Recommendation
  • Regulation Best Interest
  • Regulation SHO
  • Regulatory Notice 18-13
  • Retirement Account
  • Risk
  • Rollovers
  • SEC
  • SEC 2018 National Exam Program Examination Priorities
  • SEC Reg BI
  • SEC RIA Interpretation
  • Securities Act of 1933
  • Securities Class Action
  • Securities Litigation Uniform Standards Act of 1998 (SLUSA)
  • Senior Safe Act
  • Seniors
  • Service Providers
  • Short Sales
  • Suitability
  • supervision
  • Supreme Court
  • Surveillance
  • Technology Governance
  • UBS v. Carilion Clinic, 706 F.3d 319(2013)
  • Uncategorized
  • Unit Investment Trusts (“UIT”)
  • Verification of Assets and Liabilities

archives

  • 2023
    • January 2023
  • 2022
    • December 2022
    • November 2022
    • October 2022
    • September 2022
    • August 2022
    • July 2022
    • May 2022
    • April 2022
    • March 2022
    • February 2022
    • January 2022
  • 2021
    • December 2021
    • November 2021
    • October 2021
    • August 2021
    • July 2021
    • May 2021
    • April 2021
    • March 2021
    • February 2021
    • January 2021
  • 2020
    • December 2020
    • November 2020
    • October 2020
    • September 2020
    • August 2020
    • July 2020
    • June 2020
    • May 2020
    • April 2020
    • March 2020
    • February 2020
    • January 2020
  • 2019
    • December 2019
    • November 2019
    • October 2019
    • September 2019
    • August 2019
    • July 2019
    • June 2019
    • May 2019
    • April 2019
    • March 2019
    • February 2019
    • January 2019
  • 2018
    • December 2018
    • October 2018
    • September 2018
    • August 2018
    • July 2018
    • June 2018
    • May 2018
    • April 2018
    • March 2018
    • February 2018
    • January 2018
  • 2017
    • December 2017
    • November 2017
    • October 2017
  • About Us
  • Contributors
  • Resources
  • Presentations
  • Visit the Faegre Drinker website

© 2023 Faegre Drinker Biddle & Reath LLP. All Rights Reserved. Lawyer Advertising.
Privacy Policy

We use cookies to improve your experience with our website. By browsing our site, you are agreeing to the use of cookies. For more information about how we use cookies, please review our privacy policy and cookie policy. OK
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Non-necessary
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
SAVE & ACCEPT