There has been some hand-wringing over the past year about the potential of a fractured fiduciary duty landscape for Broker-Dealers ("BDs") and their Registered Representatives. The concern is that individual states will impose a fiduciary standard on Registered Representatives while the FINRA suitability standard, and ultimately SEC Regulation Best Interest ("RBI"), cover the rest.
Allow me to allay these concerns: the fractured fiduciary landscape already exists, and has for decades.
Nevada's Fiduciary Statues
The event that started the concern was Nevada passing legislation that imposed a fiduciary duty on anyone giving financial advice. In short, the Nevada law: "imposes a statutory fiduciary duty as set for in Chapter 628A of the Nevada Revised Statutes on Broker-Dealers and Investment Advisers."
However, four other states have common law fiduciary duties for registered representatives and 31 additional states have quasi-fiduciary duties required under common law. I'm defining "quasi-fiduciary" obligations as Finke and Langdon do: those that exceed the FINRA suitability rules but do not expressly classify BDs as fiduciaries.
Table 1: Fiduciary Status of Registered Representatives by State
Thus, 36 states already have some form of fiduciary duty required of registered representatives.
Voluntary Fiduciary Status for Broker-Dealers?
The existing uneven fiduciary duty landscape has not hampered BDs business efforts and I wouldn't expect it to in the future. Furthermore, if BDs were to find complying with the varying standards too taxing, they could just implement a fiduciary standard nation-wide.
Given SIFMA’s long-standing resistance to a fiduciary standard, voluntary adherence to one is highly unlikely. However, this might be more economical in the long-run, especially if more states pass their own fiduciary statutes.
As I have discussed in this blog posts series, I believe the pseudo-fiduciary standard under RBI will be difficult and expensive to implement. BDs and their clients would be better off under a fiduciary standard. Further, from a purely business perspective, adopting a fiduciary standard would help BDs compete with registered investment advisory firms which have been winning the battle for clients and assets.
Given the disappointment in many states with the defeat of the DOL Fiduciary Rule and RBI, it would not be surprising to see more states adopt fiduciary statutes. Fiduciary expert James Watkins opines that “So long as states enact fiduciary laws that don’t impact a pension plan like a 401(k), they have every right to act,”.
 Nevada Secretary of State; Website; Available at: https://www.nvsos.gov/sos/licensing/securities/new-fiduciary-duty; Accessed October 25, 2018.
 Michael Finke and Thomas Langdon; The Impact of the Broker-Dealer Fiduciary Standard on Financial Advice; March 9, 2012; Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2019090; Accessed October 26, 2018; 13.
 Id. at 14.
 See supra Note 2.
 Mark Miller; U.S. states eye protections for investors if federal regulation falters; Reuters; April 12, 2018; Available at: https://www.reuters.com/article/us-column-miller-fiduciary/u-s-states-eye-protections-for-investors-if-federal-regulation-falters-idUSKBN1HJ1NT?feedType=RSS&feedName=PersonalFinance; Accessed October 25, 2018.
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