Reintroduced Jan. 9 by state Senator Patrick Diegnan, Jr., (D-Middlesex), along with Assemblywoman Nancy Pinkin (D-Middlesex) and Assemblyman Nicholas Chiaravalloti (D-Hudson), the bill (S. 735/A. 335) would require non-fiduciary investment advisors to disclose to clients that they do not have a fiduciary relationship and “are not required to act in the client’s best interests.” Violations would be punishable by a fine of up to $5,000, under the legislation.
A non-fiduciary investment advisor would include “any individual or institution that advertises or uses in self-identification any term that is suggestive of investment, financial planning, or retirement planning knowledge or expertise, including, but not limited to, broker, dealer, investment advisor, financial advisor, financial planner, financial consultant, retirement planner, retirement broker, or retirement consultant.”
According to the bill language, the “plain language” disclosures would need to be both orally and in writing at the outset of the relationship, stating:
“I am not a fiduciary. Therefore, I am not required to act in your best interests, and am allowed to recommend investments that may earn higher fees for me or my firm, even if those investments may not have the best combination of fees, risks, and expected returns for you.”
Advisors would be required to maintain a signed acknowledgement that the written disclosure was provided to the client. In addition, the written disclosure must accompany any subsequent oral advice or written materials provided to clients, such as investment brochures and advertising materials.
Investment advisors subject to an existing state or federal fiduciary standard or by applicable standards of professional conduct would not be subject to the requirements. However, investment advisors who are subject to a fiduciary duty with respect to certain types of investment advice, but not to others, would be required to disclose the extent of that duty to individual investors.
It’s not clear whether the legislation has any improved prospects in the new legislature. While it was introduced in the previous session but not enacted, New Jersey has a new Democratic governor, Phil Murphy, who was also a former Goldman Sachs executive for more than 20 years.
‘Best Interest’ Standard for Life and Annuity Products Proposed in New York
Meanwhile, the New York Department of Financial Services on Dec. 27, 2017, proposed new regulations that would adopt a “best interest” standard for sellers of life insurance and annuity products. As explained in a DrinkerBiddle client alert, the proposal raises several issues for insurance producers, life insurers and annuity writers, and, if adopted, would establish a New York-specific standard for insurance licensee conduct by expanding the scope and requirements of New York’s suitability regulation.
Despite preemption issues and existing multi-agency requirements, there appears to be growing interest across state legislatures to address issues relating to fiduciary duties among brokers and investment advisors, just as the Department of Labor reviews its existing fiduciary rule and the SEC considers action.