Brokers Threaten to Leave Facing Nevada Fiduciary Duty

Nevada faces an exodus of some of the largest securities brokerage firms, such as Morgan Stanley, Edward Jones, TD Ameritrade, Wells Fargo, and Charles Schwab, if state regulators make adjustments to Nevada fiduciary duty rules.

According to reports, multiple brokerage firms have signed letters stating that they would move all of their business operations out of Nevada if the state adopts a rule raising professional standards for stockbrokers.

Brokerages Fighting Back Against Higher Broker Standards

After years of talks from Wall Street trade associations, financial institutions are arguing that a state-level advice standard requiring financial professionals to act as fiduciaries for their clients would not only conflict with federal securities laws but also limit investment options.  

The firms argue that if the Nevada secretary of state directs stockbrokers to act in clients’ best interests instead of their own, like investment advisers, then many of the companies would not be able to operate. In addition, the change would affect companies duly registered as broker-dealers and investment advisers, which includes virtually every major financial institution.

Charles Schwab, Edward Jones, TD Ameritrade, and Wells Fargo said a fiduciary duty regulation would limit access to professional investment information and options in Nevada, signaling that they would have to remove certain brokerage services provided to customers and potentially increase costs of certain services.  

Morgan Stanley released a statement citing a possible closure of all services, “Absent substantial changes to the proposal, Morgan Stanley will be unable to provide brokerage services to residents of the state of Nevada.”

Some have argued that a mass exodus of financial institutions is unlikely but are also careful to note that firms could still service Nevada residents through another state since investments are intangible services and products.

Companies Ask Nevada to Wait for Federal Fiduciary Ruling

All the major institutions have asked Nevada securities regulators to wait until The U.S. Securities and Exchange Commission makes a decision before acting. The SEC is expected to finalize a rule later this year that is expected create fiduciary standards for stockbrokers.

Outside of Nevada, other states including New Jersey and Maryland are working on their own changes to fiduciary rules. In one case, Maryland is considering legislation that would require all financial advisers in the state to be fiduciaries.

Fiduciary Rules are a Source of Tension in the Industry

While the industry states that stockbrokers and investment advisers have fundamentally different roles, with different responsibilities, consumer advocates say that brokers often mislead investors in order to generate commissions, since they are not bound by fiduciary rules.

The proposed changes to Nevada’s fiduciary rule have been opposed since their introduction. Most recently, The Nevada Securities Division released the fiduciary proposal in January to implement a law enacted in 2017 that requires brokers to meet a fiduciary standard when working with clients. Multiple groups, including The Securities Industry and Financial Markets Association and The North American Securities Administrators Association, are in conflict arguing both for sand against the changes. While brokerage firms likely would incur greater compliance costs in order to adhere to a fiduciary standard, we are hard-pressed to understand how acting in the best interests of the client is objectionable.

For now, until Nevada decides, the firms will have to wait it out.

Have You or Someone You know Lost Money as a Result of Stockbroker Misconduct?

Even absent a fiduciary standard, brokerage firms are required to supervise their brokers to protect customers from broker abuse. If they fail to do so and a broker’s misconduct causes you financial harm, you may have a claim to recover your investment losses.  If you or someone you know lost money as a result of stockbroker misconduct, contact an experienced investment fraud attorney at Dimond Kaplan & Rothstein, P.A. today.

Speak with an Investment Fraud Attorney Today

Our AV-rated* lawyers have extensive experience litigating a broad range of investment disputes, including those involving elder fraud. We will aggressively pursue claims against culpable brokerage firm or stockbroker to recover your investment losses.

If you are looking for an investment fraud attorney to review your rights and options, the investment fraud lawyers at Dimond Kaplan & Rothstein, P.A. represent individual and institutional investors who have lost money as a result of investment fraud or stockbroker misconduct. We’ve recovered more than $100 million in assets lost to investment fraud and stockbroker misconduct.

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