New Jersey

Fiduciary/Best Interest Development

Legislation

  • New Jersey proposed two related bills on January 9, 2018
  • The first (Senate No. 735) would require financial advisors to disclose their fiduciary status to investors. Senate No. 735 delineates between “non-fiduciary investment advisors” and advisors subject to a fiduciary duty. Specifically, non-fiduciary investment advisors would have to advise clients—both orally and in writing—that they are not fiduciaries, and thus have no duty to act in the client’s best interests. Any advisors subject to a fiduciary duty would have to let clients know they are subject to a fiduciary duty. Both types of advisors could face a $5,000 fine for failing to disclose this information.
  • The second (A208) requires disclosures from individuals who administer certain school retirement plans created in accordance with section 403(b) of the Internal Revenue Code
  • Specifically A208 requires “person[s] administering annuity retirement plans for teachers to annually disclose fee ratio, return, and fees to each participant.” These disclosures would need to be made both upon enrollment and annually after
Sources

New Jersey Proposed Bill Text
No. 208 Proposed Bill Text

Regulation

  • On April 15, 2019, the New Jersey Bureau of Securities issued a proposal to establish a fiduciary standard for broker-dealers in making recommendations, which include “investment strategy, the opening of or transfer of assets to any type of account, or the purchase, sale, or exchange of any security.”
  • To meet their fiduciary duty, broker-dealers would need to satisfy duties of loyalty and care.
  • The duty of care would require a broker to “make reasonable inquiry, including risks, costs, and conflicts of interest related to the recommendation or investment advice and the customer’s investment objectives, financial situation, and needs, and any other relevant information.”
  • To satisfy the duty of loyalty, the broker would need to ensure their advice is made without regard to their financial interest or the financial interest of any third-party.
  • The proposed regulation also seeks to “codify” the fiduciary standard for investment advisors, who already “owe their customers a fiduciary duty as a matter of law.” Insurance providers also owe their clients a fiduciary duty under existing law.
  • The regulation itself does not create a new private right of action concerning a breach of fiduciary duty, though New Jersey securities law has an existing private right of action should a broker commit fraud or deceit.
  • Because the proposal has not been finalized, it was set to expire on April 14, 2020, under New Jersey law. To avoid this, the Governor issued an executive order on that date extending the deadlines for rulemaking for
Sources

Rule Proposal to Require NJ Financial Industry to Put Customers’ Interests First
April 14 Executive Order extending the deadline for finalizing proposed rules.