State Law Issues

No Federal Preemption of State Common Law.

Advisors who rely upon the U.S. Securities and Exchange Commission's rules may be in for a nasty surprise.  State statutory and common law also applies fiduciary duties upon financial planners and advisors (whether they be regulated as investment advisors, registered representatives, or insurance agents).  Federal law does not preempt the growing body of case law which applies fiduciary status upon financial advisors.  Ron's short article explores the non-preemption of state common law, with respect to fiduciary standards of conduct.

 

Fiduciary Financial Advisor Case Law Review.

Ron reviews recent cases arising under state common law which state that fiduciary status may be found for those who hold out as financial or investment advisors, or for those who actually provide financial or investment advice. (Updated August 15, 2008.)

 

The Federal Attack on the Citadel of Fiduciary Protection:  How Will the States Respond?

Ron supplied a version of this outline to NASAA's 90th Annual Conference in October 2007.  The unabridged version is provided here.

Federal Law Issues. (For Ron's comments on recent legislative and regulatory developments affecting BD/RIA regulation and financial planners, please refer to "Comments" section.)

FPCompliance.com - Ron publishes and maintains articles concerning the fiduciary duties and compliance responsibilities of financial planners and investment advisers. Please visit www.FPCompliance.com for additional information.

Investment Adviser Association's Standards of Practice (as amended Feb. 28, 2006).

The Investment Adviser Association has endorsed standards since its formation in 1937. In fact, the IAA's standards were favorably cited by the U.S. Supreme Court in the landmark 1963 Capital Gains decision which held that the Investment Advisers Act of 1940 imposes a fiduciary duty on advisers. The 2006 formulation of the IAA's Standards of Practice emphasizes various aspects of an adviser's fiduciary duty.

 

CFP Board's Rules of Conduct (effective July 1, 2008)

The Certified Financial Planning Board of Standards, Inc., Rules of Conduct apply broad fiduciary standards of conduct to all Certified Financial Planners®. The CFP Board issued on February 20, 2008 Frequently Asked Questions relating to the new Rules of Conduct.

 

RAND Corporation Report. 

In December 2007, the RAND Corporation reported to the SEC regarding its study of the delivery of financial advice and products to Americans.

 

On January 9, 2008, NAPFA issued a "Response" to the Rand Report, pointing out several mistakes in the Report, reviewing the extremely limited scope of the Rand's inquiry, and pointing out an erroneous conclusion Rand reached.

 

At the InvestmentNews "Regulatory Roundtable" in February 2008, Ron Rhoades and others from various organizations discussed the Rand Report and its implications. For an edited transcript of the Roundtable, please click here.

 

In March 2008, SEC staff members met in separate meetings with representatives of various industry associations to exchange information and ideas regarding possible proposals. Ron Rhoades accompanied Tom Orecchio, the current Chair of NAPFA, to one of these presentations, during which they discussed the nature of fiduciary duties, the concept of management of conflicts of interest, and the essential role fiduciary duties play in addressing the inherent limits of disclosure. NAPFA submitted a follow-up White Paper to SEC staff on April 15, 2008.