Fiduciary Rule May Go Away, but States Are Stepping In


NJ State House

Concerns about the Labor Department’s review of its fiduciary rule are prompting states to institute their own protections for retirement investors.

The DOL is currently reviewing the rule under an order issued in February by President Donald Trump.

According to the order, if the DOL determines that the fiduciary rule is harming investors seeking advice or the ability of the retirement services industry to offer affordable advice, it is supposed to propose a new rule to revise or rescind it.

Pending the outcome of the review, Labor Secretary Alexander Acosta allowed portions of the fiduciary rule to go into effect on June 9. Other portions of the rule, including impartial conduct standards for investment advice fiduciaries, are scheduled to go into effect on Jan. 1, 2018.

Nevertheless, states are gearing up to enhance their own investor protections if the DOL fiduciary rule falls through.

For example, Nevada amended its financial planners law to remove an exemption from fiduciary requirements for investment advisers, adviser representatives, broker-dealers, and sales representatives.

The amendment in Senate Bill 383, which Gov. Brian Sandoval (R) signed on June 2, is effective on July 1.

“The genesis of Senate Bill 383 was absolutely the fact that the Trump administration seemed to put the Obama administration rule on an indefinite delay,” Peter Koltak, executive director of the Nevada Senate Democratic Caucus, told Bloomberg BNA.

A lot of retirees in Nevada get this type of financial advice, oftentimes dictated more by what is good for the adviser than what is good for the consumer, he said.

More States to Follow?

Look for other states to follow Nevada’s lead in amending their fiduciary laws to bolster investor protections, Erin M. Sweeney, an employee benefits attorney with Miller & Chevalier in Washington, told Bloomberg BNA.

Under such laws, advisers generally would have to put the best interest of the client first, similar to what is required under the Employee Retirement Income Security Act, Sweeney said. She added that several states, in their role as regulators of individual retirement accounts, are looking out for their residents and considering “whatever tools are at their disposal” to apply a best interest standard to investment fiduciaries operating in their states.

New York and California could be next in line to update their fiduciary laws to protect investors from conflicted advice, she said.

At the federal level, meanwhile, the fiduciary rule review is proceeding on three tracks, Sweeney said. One is the DOL performing a new economic analysis of the rule’s impact. A second has the DOL reviewing anticipated responses to its request for information from investment companies on how new products they are developing are being impacted by the rule. And the third is the possible issuance of best interest guidance by the Securities and Exchange Commission.

The states equate this with old-style Washington politics, characterized by inaction and many moving parts, Sweeney said.

“States say we believe in a fiduciary standard and we are going to band together to see that it happens,” she said, and they consider such efforts “a real value” to their residents.

Gain a deeper understanding of the legal complexities of employee benefits and executive compensation with a free trial to Bloomberg Law: Benefits and Executive Compensation.