Broker-Dealer Law Blog

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In Case You Missed It: Broker Dealer Law Blog – Spring 2023

The Broker-Dealer Regulation & Litigation Digest is a periodic compilation of the most read blog posts published on the Broker-Dealer Law Blog during the last few months. Catch up on the latest insights on litigation, regulatory, compliance and fiduciary issues impacting broker-dealers and other financial services companies.

Tax Credits for Starting Up Small Employer Plans: What You Need to Know

By Fred Reish and Joan M. Neri
Starting with tax years beginning after December 31, 2022, a small employer can take advantage of significant tax credits under SECURE Act 2.0 (the Act) for establishing a new retirement plan. Under the Act, the tax credits are available for plan administrative and contribution costs. The full tax credit is available to employers with 50 or fewer employees and there is a partial credit available to employers with 51 to 100 employees. There are several additional conditions for eligibility as well.

“Or Worse, Expelled”

By Sandra D. Grannum, Jamie L. Helman and Justin M. Ginter
FINRA announced on Friday, May 12, that it was expelling SW Financial, in part, because it had violated Regulation Best Interest (Reg BI). This is the first time FINRA has expelled a firm since Reg BI took effect in June 2020. The move by FINRA, however, tracks with its increased rhetoric that it will be cracking down on brokerage firms for Reg BI violations. As we have previously reported, the Division of Examinations of the Securities and Exchange Commission (the Division) has been busy implementing broker-dealer examinations to assess compliance with the regulation.

Recent State Fiduciary and Best Interest Developments

By Joan M. Neri
The number of states adopting rules that follow the Suitability in Annuity Transactions Model Regulation issued by the National Association of Insurance Commissioners (NAIC) continues to grow. Colorado, Massachusetts, Alaska and Tennessee are recent additions to the following State Fiduciary and Best Interest Development chart, bringing the total to 31 as of this date.

Reg BI: What’s Going On and What May Happen Next?

SEC Chair Gary Gensler has not publicly stated much regarding Reg BI since Spring of this year. Generally, though, the messaging from SEC leadership regarding the Division of Examinations and the Division of Enforcement continues to be aggressive. In the retail investor area, for example, in late August Chair Gensler appointed Barbara Roper, the Director of Investor Protection for the Consumer Federation of America, as a Senior Advisor to the Chair. Turning back to Reg BI specifically, what we continue to hear out of the SEC is that Chair Gensler’s regime is going to play the Reg BI “hand that it has been dealt” aggressively.

On November 4, 2021, SEC Commissioner and former Acting Chair Allison Herren Lee gave a speech at ACLI’s CLE 2021 Conference on Life Insurance Products entitled “A Call to Action: Recommendations for Complying with Reg BI.” Commissioner Herren Lee covered several Reg BI topics, including what constitutes a recommendation and mitigation. Regarding recommendations, she noted that the Commission’s supplemental materials accompanying Reg BI speak of a “call to action” that may be viewed as influencing an investor to invest in or trade a particular security being enough to constitute a recommendation. On this topic, she emphasized the importance of the account opening process. Commissioner Herren Lee also addressed mitigation, in particular to manage the risk of an associated person putting their interests ahead of their customers, perhaps due to limitations in the firm’s products menu.

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State Fiduciary and Best Interest Developments: Texas, Virginia and Montana

Texas, Virginia and Montana are the latest states to enact legislation or rules setting forth a best interest standard for annuity producers in recommending annuities to their customers.  Each state has designed its rule to follow the NAIC’s model regulation concerning suitability in annuity transactions, which requires producers to act in the consumer’s best interest without placing the producer’s financial interest ahead of the consumer’s.  Virginia’s new rule took effect May 1, 2021, while Texas’s and Montana’s rules will take effect on September 1 and October 1, 2021, respectively.

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Recent State Fiduciary Duty Developments: Idaho, North Dakota and Ohio

Idaho and North Dakota have adopted wholesale the National Association of Insurance Commissioners’ (NAIC) model suitability standard. Ohio also finalized its proposed rule adopting the NAIC model rule. This brings to six the number of states that have adopted the NAIC model (Arkansas, Delaware, Idaho, Michigan, North Dakota and Ohio), and three others have proposed to do so (Kentucky, Maine, and Nebraska).

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Broker-Dealer Regulation & Litigation Digest – Winter 2021

The Broker-Dealer Regulation & Litigation Digest is a periodic compilation the most read blog posts published on the Broker-Dealer Law Blog during the last few months. Here you can catch up on what you missed or re-read these popular post.

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Recent State Fiduciary Duty Developments: Eight States Have Proposed or Finalized Best Interest Standards for Annuity Producers

In recent months, eight states — Arkansas, Delaware, Kentucky, Maine, Michigan, Nebraska, North Dakota, and Ohio — have proposed or finalized rules setting forth a best interest standard for annuity producers in recommending annuities to their customers. Each state has designed its rule to follow the NAIC’s model regulation concerning suitability in annuity transactions, which requires producers to act in the consumer’s best interest without placing the producer’s financial interest ahead of the consumer’s. The rule also requires producers, prior to recommending an annuity, to disclose the scope and terms of their relationship to the consumer, how the producer is being compensated, and any material conflicts of interest. Notably, the rule does not create a fiduciary obligation or relationship with the consumer, and producers are not subject to civil liability for breaching any fiduciary standard of conduct.

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