SIFMA joins other trade associations in a joint letter to comment on the Massachusetts Securities Division’s Proposed Fiduciary Conduct Standard…
March 1, 2019
Ms. Diana Foley
Nevada Secretary of State’s Office
2250 Las Vegas Boulevard North
North Las Vegas, Nevada 89030
RE: January 18 Request for Comment on Draft Regulations pertaining to Nevada Revised Statutes 90.575, 628.010 and 628.020, as modified by Senate Bill No. 383
Dear Ms. Foley:
We the undersigned trade associations appreciate the opportunity to comment on your draft fiduciary duty regulations. We collectively represent a broad cross section of the financial services industry, and many of our members do business and serve retail investors in Nevada. While many of us have sent separate letters, we thought it was important to highlight some key universal concerns.
Specifically, as you move from draft regulations to a formal rule proposal, we would encourage you to consider the following:
1. The SEC is Close to Finalizing Its Own Regulation Best Interest Standard (“Reg BI”). As you well know, the SEC is developing a uniform, nationwide, heightened best interest standard of conduct for broker-dealers (“BDs”). We believe a national standard provides enhanced investor protection, avoids investor confusion, and is much easier to administer and operationalize than an uneven patchwork of state laws.
It is our understanding that a final SEC rule may be published before the fourth quarter of 2019. Given how close Reg BI is to completion, we would encourage you to await the final federal rule before moving forward with your own. This would ensure that your regulations do not unnecessarily duplicate or conflict with the federal standard. If you decide not to wait on the SEC, we would suggest you clarify that firms that comply with Reg BI, once adopted, will be deemed to be fully compliant with the Nevada law.
2. The Draft Regs Continue to Raise Pre-Emption and Other Legal Concerns. We believe the draft regulations have both pre-emption issues and legal deficiencies. We find there to be conflicts with the National Securities Markets Improvements Act (“NSMIA”), the Advisers Act, the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Federal Arbitration Act, among others.
We previously raised NSMIA concerns in our early letters1 to the Division and in subsequent testimony. Unfortunately, the draft regulations do not alleviate these concerns.
Specifically, the State is pre-empted from imposing regulatory requirements on Registered Investment Advisers as its jurisdiction is limited to enforcement of antifraud provisions.2 The law and draft regulations go well beyond the State’s legal authority.
The State is also pre-empted from imposing different or additional recordkeeping requirements.3 The draft regulations would impose new recordkeeping requirements on BDs. For example, the draft regs require a number of additional disclosures, such as “gains,” “all risks” and “all features” of a product, and “all information” regarding a potential conflict of interest. BDs will need to develop new supervisory systems and make and keep new records to document compliance with these requirements. This triggers a new or different record-keeping obligation which is pre-empted under NSMIA.
The draft regulations state that they should be “interpreted and applied in harmony with [NSMIA].” This simply is not possible as the regulations are currently drafted.
3. The Draft Regulations Would Likely Accelerate the Move from Brokerage to Fee-Based Accounts. The draft regulations impose a presumption that a BD owes a fiduciary duty and characterize many routine client interactions as triggering such a duty. Dual registrants are also presumed to be acting as an IA or IAR and are subject to a continuous fiduciary duty for which there is no exemption. These conditions will likely encourage firms to re-evaluate their brokerage services. BD accounts represent an important, cost-conscious choice for retail investors and provide access to affordable advice, particularly for smaller, buy-and-hold investors. We would encourage you to strike the presumptions for BDs and dually-registered firms in the draft regulations.