NAILBA Perspectives - Spring 2018 - 22

legislative update

Fiduciary Madness
I

MARK VALENTINI, MPP
Mark Valentini, MPP is a former
Director of Government Affairs for
NAILBA and currently works as a lobbyist for a non-profit organization
in Washington, DC. He has a Masters
in Public Policy with a Concentration
in Governance Systems and Policy
Management from George Mason
University and has served in a variety
of legislative roles during his career.

n March, the Department of
Labor announced that it will
hold off on enforcing the fiduciary rule it implemented near
the end of the Obama administration. This comes on the heels of
the Fifth Circuit Court of Appeals'
decision to vacate the rulemaking.
The Fifth Circuit decision and DOL's
subsequent decision to pause
enforcement efforts does not seal
the fate of the rule nor the issue
surrounding standards of care. In
fact, the DOL's initiation of this
rulemaking back in 2010 opened a
Pandora's box of fiduciary proposals, with the NAIC and state governments all trying to get ahead of
the issue by proposing their own
rules regarding standards of care.
Here's a brief overview:
National Association of
Insurance Commissioners
The NAIC proposed last fall to
amend its Suitability in Annuities Sales model law to include a
"best interest" standard. Further
action on its proposal was deferred
this past spring while the working group tasked with overseeing
the model's revisions collect further public comment. Some industry insiders are speculating that
the NAIC is deliberately taking a
backseat to let New York act first,
which would be disastrous if that is
indeed the case.
New York State Department of
Financial Services
In the state proposal that one
NAILBA member noted in NAILBA
Network would "make us wish for
the DOL," New York is attempting
to add its own twist to the NAIC's
best interest proposal by applying it to any life insurance product
being sold. This would have a severe

22 perspectives SPRING 2018

impact on the middle market's accessibility to any type of life insurance
be it term or universal. If the New
York proposal becomes law, it would
set a dangerous precedent for other
states. This idea is the brainchild of
Governor Andrew Cuomo who was
not satisfied with the pace of action
on the DOL rule and sees this as a
winning issue with Democratic voters as he considers a possible Presidential run.
Massachusetts
William Galvin, Secretary of the
Commonwealth for Massachusetts-
whose office oversees the state's
securities division-has taken it
upon himself to begin enforcing the
DOL's fiduciary rule, by initiating an
enforcement action earlier this year
against Scottrade for violation of
the DOL rule. Despite the setbacks
presented by the Fifth Circuit's decision and DOL's subsequent decision
to hold off on enforcing the few provisions that it was implementing,
Secretary Galvin is not withdrawing
the lawsuit. In fact, if the lawsuit
is upheld in court it could result in
other state officials initiating similar lawsuits.
New Jersey
New Jersey's state senate introduced a bill that would require
"non-fiduciary investment advisers" to include a disclaimer upon
any sale that explicitly states:
"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." While not imposing an
actual best interest standard, this

type of disclaimer is obviously
meant to put non-fiduciary financial professionals at a disadvantage to fiduciaries while repelling
potential customers.
Maryland
The state legislature in Annapolis introduced financial regulatory
reform legislation in the House
and Senate that includes provisions that would hold broker-dealers to a fiduciary standard. Similar
laws have already passed within
the last year in other states. In
2017, Nevada passed a law that
imposes fiduciary duties on brokers
that apply to both retirement and
non-retirement accounts, while
Connecticut passed a law imposing a similar standard on brokers
that applies to non-ERISA retirement accounts to supplement the
DOL ruling.
This past April, the U.S. Securities and Exchange Commission proposed its own rule, Regulation Best Interest. The 1000+
page notice of proposed rulemaking (NPRM) would establish a
"best interest" standard for broker-dealers making a recommendation to retail customers and
require disclosures that the SEC
claims would clarify the definition
of the relationship between broker and customer so that there is
no confusion when entering into a
contract. As NAILBA digests Regulation Best Interest and determines the potential impact of the
SEC proposal on independent brokerage, we must continue to be
vigilant and work with our industry partners to advocate against a
one-size-fits-all standard.

Table of Contents for the Digital Edition of NAILBA Perspectives - Spring 2018