Diana Foley, Securities Administrator Securities Division
Nevada Office of the Secretary of the State
555 East Washington Avenue
Las Vegas, N.V. 89101
RE: Fiduciary Duty – S.B. 383
Dear Administrator Foley,
The ERISA Industry Committee (“ERIC”) is pleased to submit comments to the Nevada Securities Division on Senate Bill 383 (“S.B. 383”), the law imposing a statutory fiduciary duty on brokers- dealers and investment advisers, and the effect proposed regulations, if adopted, would have on small business as defined under Nevada law.
- ERIC’S INTEREST IN THE RULEMAKING
ERIC is the only national association that advocates exclusively for large employers on health, retirement, and compensation public policies at the federal, state, and local levels. While ERIC advocates for large, multistate employers, some of our members have operations in the State of Nevada that utilize fewer than 150 full-time or part-time employees.
ERIC has an interest in laws and policies that place burdens on our members’ ability to offer quality and cost-effective retirement plans to millions of employees and their families across the country. ERIC believes that employees, retirees, and their families who wish to receive advice with respect to how to invest their retirement accounts or education to help them achieve their retirement savings goals should continue to have meaningful opportunities to do so.
S.B. 383 was signed by Governor Brian Sandoval on June 2, 2017, and was scheduled to go into effect July 1 of the same year. On June 9, 2017, the U.S. Department of Labor’s (“DOL”) fiduciary rule went into partial effect, with the remaining provisions of the rule to take effect January 1, 2018. While no regulations have been proposed or adopted in relation to S.B. 383, ERIC urges the Securities Division to model or mirror the language provided for under the DOL’s rule. Even though the DOL’s rule is under review, and future amendments are possible, portions have already gone into effect and apply to individuals in all states that fall under the rule’s definition of a fiduciary. To have competing rules that apply to the same sets of individuals would be both burdensome to the individuals doing the advising and detrimental to the individuals receiving advisement. To achieve this, ERIC suggests including language in any proposed or finalized rules for S.B. 383 that incorporates the DOL’s rule or automatically updates as the DOL rule is updated and goes into fuller effect.
- POTENTIAL FOR PATCHWORK
S.B. 383 is broader in its scope than the DOL’s rule. S.B. 383 covers any “person who for compensation advises others upon the investment of money or upon provision for income to be needed in the future,” and no longer excludes brokers-dealers and investment advisers. This larger pool of “financial planners” must also disclose any financial gain that may be received, and make constant, diligent inquiries into a client’s financial circumstances and obligations. The DOL’s rule, on the other hand, covers only investment advice to plans, plan sponsors, fiduciaries, participants and beneficiaries, and IRA owners, and requires only that conflicts of interest are avoided. Part of the DOL’s rule are impartial conduct standards, which require those covered to advise in the best interest of the retirement investor, charge reasonable compensation for services, and make no misleading statements.
S.B. 383 places a greater burden through more prescriptive requirements on brokers-dealers, investment advisers, and other financial planners that advise on retirement plans. While states are within their right to provide for greater standards than what the federal government requires, Nevada should be hesitant if doing so would lead to more cumbersome and costly administrative processes. Broadening the state’s fiduciary duty beyond what the DOL’s rule requires, would result in an increase of costs for all involved. It is both an increased burden and cost for the financial planner to take extra steps not required by the DOL’s rule, a cost which could be felt by the retirement plan itself. Further, if the plan decides not to absorb such added costs then the plan participants could be liable for absorbing them (i.e. the very people S.B. 383 is intended to protect).
As of January 2017, courts in four states imposed a fiduciary standard on broker-dealers, courts in 14 other states held a duty did not exist, and two states had laws providing that no fiduciary duty is owed unless there is a “special agreement” between individuals.1 Furthermore, roughly thirty- two states do not have a fiduciary duty standard, but “imposed a standard that exceeds the federal ‘suitability standard.’”2 Nevada is thus one of the first states to adopt a statutory measure explicitly imposing fiduciary responsibilities on brokers-dealers and investment advisers, but it will certainly not be the last (e.g. New York, Connecticut, and New Jersey are currently considering their own conflict of interest rules). Nevada should take notice of the changing landscape and act cautiously in the regulations it adopts for implementing S.B. 383, as it could be viewed as a model for others. Nevada should understand how their fiduciary duty rule will interact with both the DOL’s and those that begin to emerge from its sister states.
- IMPACT ON LARGE EMPLOYERS
For large employers that operate across state lines and provide a retirement plan to employees, uniformity is key and allows for consistency and predictability across state lines. While most ERIC members have employees in almost every state, some have operations in Nevada that fall under the definition of small employer. For those members, and other large employers, being statutorily bound to two sets of rules governing the same individuals is cumbersome, unnecessary, and possibly detrimental to those receiving advice. Employers are able to operate best when they are not saddled with duplicative laws that, no matter how similar in objective or intent, have differences that have adverse consequences on all parties involved. ERIC therefore urges the Securities Division and Administrator Foley to adopt regulations that fall closely along those finalized by the DOL and its fiduciary rule. Should the DOL amend their rules between now and the finalization of Nevada’s rules, Nevada should react accordingly and incorporate such changes to ensure cohesion and uniformity.
ERIC appreciates the opportunity to provide comments during the initial stages of the rulemaking process. We welcome the opportunity to work with your office in crafting rules that benefit all Nevada citizens without increasing the burden on employers already satisfying the Department of Labor’s fiduciary rule.
If you have any questions concerning this letter, or if we can be of further assistance, please contact me at bhum@ERIC.org or 202-789-1400.
Associate, Retirement & Compensation Policy