Recent State Fiduciary Duty Developments: Updates from Massachusetts, New Jersey, Illinois and the CFP Board.

Faegre Drinker Biddle & Reath LLP

The issue of “best interest” continues to be a hot topic in the states and trade groups, though one state has fallen out of the running…at least for now.

The State of Massachusetts has two pending initiatives. The first is a regulation proposed by the state Securities Division requiring investment advisers to create a table of fees for their services. The comment period on the proposal ended in May, and we await further action. In a more recent development, the Division is considering a regulation that would apply a fiduciary standard on broker-dealers, investment advisers and their representatives. The proposal was released in mid-June, and the comment period ends on July 26. Under the proposal, enforcement would be vested in the Securities Division, and it would not create a private right of action.

The comment period on New Jersey’s proposal to establish a fiduciary standard, originally released in April of 2019, has been extended to July 18, 2019.

The Certified Financial Planner Board of Standards, Inc. (the “CFP Board”) has long had a Code of Ethics and Standards governing the conduct of its members in providing financial planning services. In November 2018, the CFP Board extended the Standards to include a fiduciary duty owed to clients to cover financial advice to clients. The change becomes effective in October 2019. However, unlike a law or regulation the standards would not create an enforcement right for regulations or investors; instead, a violation would only lead to disciplinary action by the CFP Board. Given the value that advisers place on the CFP designation, it will likely have a significant impact on their practices. (A description of the Standards has been added to our Best Interest and Fiduciary Developments chart. A link to the updated chart is provided at the end of this post.)

The one state where the pendulum in favor of state best interest and fiduciary standards has swung away from regulation is Illinois. In 2018, a bill entitled the Investment Advisor Disclosure Act was introduced in the state legislature. The bill had no text and no action was taken before the end of the legislative session. The issue appears to be dead, at least for now, since no new legislation has been introduced.

A copy of our updated Best Interest and Fiduciary Developments chart can be downloaded here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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