Investor Protection Clinic - Student Blog

Fiduciary Duties of Investment Advisers and Stockbrokers in Nevada

Does your Financial Planner have a legal duty to act in your best interests?

 

Recent research conducted by the RAND Corporation found that the average American does not understand how our complex financial system operates. For example, RAND found that most Americans do not understand the difference between a registered investment adviser and a broker-dealer (also known as a stockbroker or broker). According to this same research Americans often miss that these two categories of financial planners have different legal duties under both state and federal law. Registered investment advisers, or financial planners that receive compensation for providing investment advice, owe a fiduciary duty to act in their client’s best interest. While investment advisers do have a fiduciary duty to their clients nationwide, the circumstances where brokers owe a fiduciary duty to their clients are not as clear.

 

Instead, brokers, or financial planners that receive compensation via commission from the investment products they recommend, must provide “suitable” recommendations to their clients. This does not necessarily mean that brokers must act in their clients “best interest.”

 

Recent Nevada Changes to Fiduciary Duties of Financial Planners

 

In July 2017 the Nevada State Legislature enacted Senate Bill 383 (“SB 383”). It changed which financial planners have a fiduciary duty under Nevada law. Prior to SB 383 Nevada statutes did not impose a fiduciary duty on brokers. SB 383 altered the statute’s language to require investment advisers and brokers to act with a fiduciary duty towards their clients.

 

What does this mean for Nevada investors?

 

The enactment of SB 383 and the subsequent changes to Nevada’s statutes imposed a fiduciary duty upon investment advisers and brokers as of July 1, 2017. The scope of that duty remains uncertain. The Nevada Securities Division has not yet released the rules and regulations of how this fiduciary duty will apply and how the state will enforce the fiduciary duty. Until these rules and regulations become available, Nevada brokers and investment advisers must operate with a fiduciary duty to act in the best interests of their client.

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