Category: Fiduciary

Recent State Fiduciary Duty Developments: Arizona Enacts Best Interest Standard

Arizona has become the second state after Iowa to enact a best interest standard for the sale of annuities. Like the Iowa law, both of which become effective January 1, 2021, Arizona’s law is modeled after the National Association of Insurance Commissioners (NAIC) model regulation. The new law requires insurance producers to “act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the producer’s or the insurer’s financial interest ahead of the consumer’s interest.”

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Recent State Fiduciary Duty Developments

The Iowa Insurance Division has adopted the insurance producer portion of the rule for its proposed best interest standard for annuity sales, effective January 1, 2020. In response to comments, the Division elected to postpone the rule’s application to securities professionals, indicating that it intends to publish new rulemaking for the securities industry later this summer.

See the updated state chart.

Recent State Fiduciary Duty Developments

The Iowa Insurance Division has proposed a “best interest” standard for the sale of annuities in that state. The press release for the proposal indicates that it “follows efforts by the National Association of Insurance Commissioners (NAIC) to develop a model Suitability in Annuity Transactions Model Regulation” and stated that the proposal is designed to be “harmonized“ with the SEC’s Regulation Best Interest. The comment period expires on April 28, 2020, though it seems this could be extended in light of the coronavirus crisis.

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State Fiduciary Duty Developments: Massachusetts Moves Ahead with Fiduciary Standard

The Massachusetts Securities Division has issued an amended version of its proposed fiduciary standard for financial advisors. The original proposal was released in mid-June.

The amendment adds definition to the standard by including a detailed list of requirements as described in Faegre Drinker’s updated state law chart. The absence of this type of description has been a major criticism of other attempts at adopting a fiduciary standard for financial advisors.

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A Look Inside the SEC’s Final RIA Guidance and Its Discussion of “Best Interest”

In light of the significance of the final rules and commission interpretations issued by the Securities and Exchange Commission on June 5, 2019, Drinker Biddle & Reath’s Best Interest Compliance Team is publishing a series of articles on the subject. The first article, “The Final Reg BI Package: What to Know and What’s Next,”  described the final package of rules and interpretations. The second article covered “Form CRS .” The third article, summarized here, will provide a more detailed analysis of strategically selected provisions of the RIA Guidance.

The Securities and Exchange Commission (SEC) Interpretation Regarding Standard of Conduct for Investment Advisers (RIA Guidance) reaffirms, interprets, clarifies, and provides guidance regarding the fiduciary duty an investment adviser owes to its clients under the Investment Advisers Act of 1940 (Advisers Act) as it has been interpreted by common law and SEC guidance. The RIA Guidance also describes the underlying responsibilities that constitute an investment adviser’s fiduciary duties: the Duty of Care and the Duty of Loyalty.

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Recent State Fiduciary Duty Developments: Updates from Massachusetts, New Jersey, Illinois and the CFP Board

The issue of “best interest” continues to be a hot topic in the states and trade groups, though one state has fallen out of the running…at least for now.

The State of Massachusetts has two pending initiatives. The first is a regulation proposed by the state Securities Division requiring investment advisers to create a table of fees for their services. The comment period on the proposal ended in May, and we await further action. In a more recent development, the Division is considering a regulation that would apply a fiduciary standard on broker-dealers, investment advisers and their representatives. The proposal was released in mid-June, and the comment period ends on July 26. Under the proposal, enforcement would be vested in the Securities Division, and it would not create a private right of action.

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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.

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.

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