Expect Focus Life Insurance, September 2017

Nevada Securities Act Amendments – What’s Next?

Financial Services Regulatory   |   Securities & Investment Companies   |   Life, Annuity, and Retirement Solutions   |   FINRA Litigation, Enforcement and Investigations   |   September 26, 2017
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Over the summer, much was written about amendments to the Nevada Securities Act provisions governing financial planners, which became effective July 1, after being signed by the Governor on June 2.

Prior to the amendments, Nevada law excluded from the definition of financial planner insurance producers, broker-dealers, sales representatives, and investment advisers. As amended, the exclusion for insurance producers was maintained but those for broker-dealers, sales representatives, and investment advisers were removed. Thus, unless an individual is an insurance producer only, such person is a financial planner subject to Nevada law imposing fiduciary duties in connection with their investment advice to clients.

The Nevada statutory fiduciary duties include 1) providing compensation disclosure to clients and 2) making diligent inquiry of each client, to ascertain and keep currently informed, concerning the client’s financial circumstances and present and anticipated obligations to his or her family. Loss resulting from a financial planner’s advice subjects a financial planner to fiduciary duty liability.

The amendments also authorize the Nevada Securities Administrator to adopt regulations concerning fiduciary duty and penalties. The Nevada Securities Division is in the process of considering the adoption of regulations pursuant to Nevada administrative procedure requiring soliciting comments, conducting a workshop, and holding a public hearing on any proposed regulations. The Nevada Securities Division anticipates that a public hearing will be held after January 1, 2018.

Trade groups and interested parties have submitted comments opposing the amendments. A chief concern raised by several commenters is that Nevada’s authority to impose regulatory requirements on investment advisers and broker-dealers is preempted by the National Markets Improvement Act of 1996 (NSMIA). In this regard, the SEC has noted that Section 203A(b) of the Advisers Act preempts "all regulatory requirements imposed by state law on Commission-registered advisers relating to their advisory activities or services, except those provisions that are specifically preserved by [NSMIA]." A similar provision with regard to federally registered, FINRA member, broker-dealers preempts state regulations relating to, among other things, making and keeping records.

So, although Nevada’s amended financial planner law is in effect, the reach of the amended law and the scope of regulations remain open issues.

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