RIA Compliance Blog
On June 2, 2017, Brian Sandoval, the Governor of Nevada, approved proposed amendments to a Nevada statute that regulates so-called “financial planners.” According to the statute in question, a “financial planner” is “a person who for compensation advises others upon the investment of money or upon provision for income to be needed in the future, or who holds himself or herself out as qualified to perform either of these functions.” Before the amendments, the statute carved out exclusions for investment advisers and broker-dealers from the definition of a financial planner. The amendments, however, will remove those exclusions. This will result in investment advisers and broker-dealers being identified as financial planners. The amendments became effective on July 1, 2017.
The amendments will also result in investment advisers and broker-dealers having a fiduciary duty with respect to advice they give Nevada clients. According to another Nevada statute, a financial planner must “disclose to a client, at the time advice is given, any gain the financial planner may receive… if the advice is followed.” A financial planner is also required to make a comprehensive examination of each initial client and continually update information regarding a client’s financial situation and goals.
Investment advisers and broker-dealers with Nevada clients may also face potential liability if certain conditions are met. Nevada law provides that if a client incurs losses after receiving advice from a financial planner, that client can recover from the financial planner if specified circumstances are present. For a client to recover, it must be established that either the financial planner breached any part of his or her fiduciary duty, the financial planner was grossly negligent in choosing the method of action advised, in light of the client’s circumstances that the financial planner knew, or the financial planner broke any Nevada law in endorsing the investment or service.
The amendments will also confer new enforcement powers to the Administrator of the Securities Division of the Office of the Secretary of State (“Administrator”). The amendments task the Administrator with enforcing investment advisers and broker-dealers’ compliance with their fiduciary duty as financial planners. The amendments provide that the Administrator can enact regulations that identify which acts, practices, or courses of business would constitute a violation of a financial planner’s fiduciary duty to his or her clients. The amendments also provide that the Administrator can recommend methods “reasonably designed to prevent broker-dealers, sales representatives, investment advisers and representatives of investment advisers from engaging in acts, practices and courses of business” that would qualify as violations of their fiduciary duty.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds, and issuers of securities, among others. Our regulatory practice group assists financial service providers with complex issues that arise in the course of their business, including compliance with federal and state laws and rules. Please visit our website for more information.