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Midterm Wins for Dems Could Lead to More State Fiduciary Rules

April 16, 2018

The uncertainty about the future of a fiduciary standard applied to financial advisors has led several states to take matters into their own hands when it comes to broker conduct, Reuters writes. And if Democrats take more control in the November elections, brokers may see even more state fiduciary rules, a lawyer tells the newswire.

The Department of Labor’s fiduciary rule, which only applies to retirement account advisors and purports to force them to put clients’ interest first, was vacated in an appeals court in March.

But the SEC is going ahead with its own fiduciary standard, expected to come out before the summer, that would apply to broker-dealers, Reuters writes.

In addition, the National Association of Insurance Commissioners is looking at possibly taking language from the DOL’s rule to apply to annuity sales, according to the newswire.

Amid this uncertainty, states have been acting on their own. Lawmakers in Nevada approved last summer to extend their fiduciary rule not just to financial planners but also to brokers, and require disclosure of all commissions and profits they earn on client investments, Reuters writes. Connecticut has already introduced similar legislation while New York and New Jersey are currently mulling over bills, according to the newswire. The Maryland senate is passing the buck to its consumer protection agency for now, instructing it to decide whether the state should put a fiduciary law in place, Reuters writes.

State courts have also been moving on the fiduciary standard: in California, Missouri, South Carolina and South Dakota, the courts imposed the fiduciary standard on broker-dealers, while in 14 other states, courts have determined brokers should not be bound to clients by a fiduciary duty, according to the newswire.


Meanwhile if the Democrats are able to secure more seats in state legislatures and governor's mansions come November, more states would unveil similar fiduciary rule bills, Georgia-based lawyer James Watkins, who has experience with securities compliance and fiduciary law, tells Reuters. And whatever the fate of the fiduciary rule in the U.S. Supreme Court — some have said it will ultimately determine the fate of the DOL rule — state rules would hold if they don’t interfere with the retirement plans governed by the Employee Retirement Income Security Act, he tells the newswire.

By Alex Padalka
  • To read the Reuters article cited in this story, click here.