George Michael Gerstein comments on possible blowback to Nevada fiduciary rule

Fund Fire interviewed me regarding industry concerns over the draft Nevada fiduciary proposal and its effect on broker-dealers and investment advisers. There are now murmurs of firms exiting, or rolling back services in, Nevada over the controversial regulation.

Fallout over the draft Nevada fiduciary regulation?

Financial Advisor IQ is reporting that Morgan Stanley and Wells Fargo “are among several brokerages threatening to cut down or eliminate their services in Nevada if the state goes through with its plans for a state-level fiduciary rule….”  Charles Schwab, Edward Jones and TD Ameritrade are also reportedly willing to limit investment information provided to investors in Nevada should the regulation move to a final stage.

Our interview with The Intercept

Mixed signals from the states?

Nevada faces a “chorus of concerns” over its expansive fiduciary proposal

I was recently interviewed by Fund Intelligence regarding the comment letters sent to the Nevada Securities Division regarding its draft fiduciary duty regulations applicable to broker-dealers and investment advisers. We have already closely analyzed the proposal and written about its potential effects on private fund managers. I told Fund Intelligence: “Now that the comment period has closed, Nevada will have to wade through the chorus of concerns ranging from federal preemption to myriad interpretive gaps and loose threads in the proposal.” Some of the comment letters paid considerable attention to the numerous preemption issues, including under NSMIA and ERISA, created by the draft regulations.  In addition to preemption, the proposal also suffers from ambiguity in a number of key areas, which we have previously outlined, rendering the proposal overly broad.

Fiduciary Governance Group featured in InsuranceNewsNet Magazine regarding the multiple “best interest” legislative and regulatory state proposals on annuity sales

InsuranceNewsNet Magazine just published an insightful article on the various state best interest proposals regarding annuity and insurance sales within the broader NAIC context. The Fiduciary Governance Group’s analysis was featured.

Bill Mandia & George Michael Gerstein discuss fiduciary developments

Coverage of our analysis re. the Nevada proposal on private funds

Last night, we discussed how the Nevada fiduciary proposal could affect private funds. Today, ThinkAdvisor covered our analysis (and the proposal’s echoes of the 2016 DOL Fiduciary Rule), while also interviewing Phyllis Borzi, formerly of the DOL.

Nevada fiduciary proposal’s potential effect on private fund managers

The recent Nevada fiduciary proposal has its sights set on broker-dealers. But private fund managers, and other investment advisers, are covered, as well. Discretionary management of a client’s assets is fiduciary conduct. However, communications by fund managers with prospective and current investors regarding their interests in the fund may also amount to fiduciary investment advice under the proposal. Similarly, communications regarding the features of the fund may amount to fiduciary investment advice. Thus, the Nevada proposal seems to raise similar issues as the 2016 DOL Fiduciary Rule for private fund managers.

The proposal seeks to address these concerns by providing that information about a security that is specifically contained in the security’s “offering documents” is presumptively not investment advice unless, as part of the discussion, there is (A) a recommendation of one product over another, (B) a recommendation to buy, hold, or sell a security, or (C) advice on the purchase, hold, sale, or value of a security, to a client or limited group of clients.

It is unclear what, beyond an offering memorandum, constitutes “offering documents” for purposes of this presumption. Would a pitch book suffice? Would the materials necessarily have to be in written form and would they have to be shared with all prospective/current investors?

It is also worth mentioning that information about a fund that is not “specifically” described in an offering memorandum or other material that is an “offering document” seems to be considered investment advice. Consider whether communications with a prospective investor regarding the attributes of two or more funds would give rise to “investment advice” under the proposed definition.

The proposal raises a number of interpretive issues, including those described above. The comment period closes on March 1.

An increasingly growing web of fiduciary compliance