We have big news in the regulation of investment advice space.  Nevada just released its proposed regulations under the state's fiduciary duty statute.  Comments are due on March 1, 2019.  I broke the draft regulations down on Twitter when they came out and highlighted a few provisions:

Nevada's draft regulations differ from the SEC draft in significant ways.  The draft Nevada regulations are substantially shorter coming in at eight pages against over a thousand pages from the SEC.  They also catch more misconduct.  Consider the SEC's proposed title restrictions.  Although the SEC recognized that brokers calling themselves advisors/advisers has a tendency to mislead, the SEC only specifically targeted a few titles.  The Nevada regulations go broader:

Nevada also calls for brokers to explain how much they're getting paid when they make a recommendation.  This is important because many people operate under the misconception that brokers give advice for free, perhaps as some sort of concierge service through an affiliated bank:

The proposed regulations have made a considerable splash with coverage from the Investment News, Wealth Management, Think Advisor and others.  Although the regulations are stronger than anything proposed by the SEC, consumer groups are also calling for more, including a specific definition of the term "fiduciary duty" and an explicit requirement for brokerage firms to mitigate their conflicts of interest.

The move toward more state action comes as confidence in the SEC's proposed regulation best interest falters.  Other states moving toward a state rule include New York, New Jersey, and Maryland.  Barbara Roper, from the Consumer Federation of America framed the issue this way:

Nicole Boyson, a finance professor at Northeastern, also weighed in on the SEC's shortcomings:

Ultimately, time will tell how this all shakes out.  Although the industry will certainly challenge these regulations, I'm skeptical about their argument that the National Securities Markets Improvement Act somehow preempts state regulation on this front.

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Photo of Benjamin P. Edwards Benjamin P. Edwards

Benjamin Edwards joined the faculty of the William S. Boyd School of Law in 2017. He researches and writes about business and securities law, corporate governance, arbitration, and consumer protection.

Prior to teaching, Professor Edwards practiced as a securities litigator in the New…

Benjamin Edwards joined the faculty of the William S. Boyd School of Law in 2017. He researches and writes about business and securities law, corporate governance, arbitration, and consumer protection.

Prior to teaching, Professor Edwards practiced as a securities litigator in the New York office of Skadden, Arps, Slate, Meagher & Flom LLP. At Skadden, he represented clients in complex civil litigation, including securities class actions arising out of the Madoff Ponzi scheme and litigation arising out of the 2008 financial crisis. Read More

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