Bill requiring fiduciary disclosure reintroduced in New Jersey

Measures would obligate financial advisers to tell clients they do not have to act in their best interests

Jan 11, 2018 @ 4:50 pm

By Mark Schoeff Jr.

New Jersey state lawmakers introduced legislation this week that would require financial advisers to disclose their fiduciary status to investors.

Under the measure, advisers who do not have to meet a fiduciary standard must tell clients in a compulsory statement.

"I am not a fiduciary," reads the language included in the bill. "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."

The legislation's sponsors — Sen. Patrick J. Diegnan Jr., D-Middlesex; Assemblywoman Nancy J. Pinkin, D-Middlesex; and Assemblyman Nicholas Chiaravalloti, D-Hudson — refiled the bill Tuesday, after it failed to become a state law in the previous session of the legislature.

The idea for the measure grew out of a meeting Mr. Diegnan had with members of the New Jersey Financial Planning Association in 2015, according to his chief of staff, Tom Lynch.

"Consumers just don't understand the concept of a fiduciary, but they do understand doing the right thing," Mr. Lynch said. "This bill seeks to strike that balance."

It's not clear whether the measure will get farther in the legislative process this year. The lawmakers have not yet begun to try to build political support, nor have they talked to New Jersey Gov.-elect Phil Murphy, a Democrat and former Goldman Sachs official, about the bill.

Investment advisers are held to a fiduciary duty, while brokers must meet a suitability standard, which requires that they sell products that meet an investor's objectives and risk tolerance but allows them to recommend high-fee investments.

Although the three-page bill has few regulatory directives, the bracing disclosure script could be seen by brokers as a shaming mechanism, according to Andrew Hartnett, an officer at Greensfelder, Hemker & Gale.

"At first glance, it seems like the least heavy-handed of any fiduciary regulations," said Mr. Hartnett, a former Missouri securities director. "But the disclosure is written in such a way that I wonder what the future of the commission-based investment adviser model in New Jersey is if this becomes law."

Connecticut recently implemented a fiduciary disclosure law, and last year the Nevada legislature approved a bill that applies fiduciary duty to the state's brokers. The regulation to implement the law is now being drafted.

A similar bill to New Jersey's has been introduced in the New York legislature. Meanwhile, the New York Department of Financial Services has proposed a regulation requiring that insurance sales professionals act in the best interests of their clients.

All of the state activity is occurring while the Department of Labor reviews its fiduciary duty rule under a directive from President Donald J. Trump that could lead to major changes. The Securities and Exchange Commission also is working on its own fiduciary rule.

The swirl of activity is causing stress for financial firms, according to George Michael Gerstein, counsel at Stradley Ronon Stevens & Young.

"What will frustrate the industry is the timing of these" state bills, Mr. Gerstein said. "It's probably a challenge for compliance when you're tracking what happens at the DOL, the SEC and at the state level. It becomes difficult to map."

The existing and potential state laws could be legally preempted by the DOL and SEC rules. But even if they aren't, federal regulators can provide an overarching investment advice rule that prevents a proliferation of state regulations.

"It certainly heightens the benefits of the SEC putting forward a meaningful proposal sooner rather than later in terms of uniformity and ease of administration," Mr. Hartnett said.

Mr. Gerstein expects momentum for fiduciary laws at the state level to keep building now that New York, New Jersey and Nevada are leading the way. In addition, there is concern by some state lawmakers about the DOL rule being weakened.

"It is easy to score political points with these types of bills and laws," Mr. Gerstein said. "The industry is going to need some clarity and finality sooner rather than later at this rate."


What do you think?

View comments

Recommended for you

Upcoming Event

Oct 09


Diversity & Inclusion Awards

Attend the industry’s first event celebrating diversity and inclusion as well as recognizing those who are leading the financial services profession in this important endeavor. Join InvestmentNews, as we strive to raise awareness, educate... Learn more

Featured video


The importance of a diverse team

Clients, advisers, and even communities are telling firms that yes, diversity within the advisory community is important.

Latest news & opinion

Private Ocean grows to $2.2 billion with acquisition of Mosaic Financial

Combined financial planning operation gives the firm an expanded footprint in the San Francisco area.

Joe Duran has a game plan, and anyone can play

The CEO of United Capital built a formula for holistic financial planning that any firm can tap into — for a price.

LPL video about private equity looks like a swipe at Cetera

Recruiting video warns about potential consequences for advisers when a PE firm buys a broker-dealer.

Ladenburg chairman Phillip Frost steps down

The SEC charged Frost with fraud earlier this month.

Envestnet Tamarac partners with Schwab, TD on digital account openings

Auto-filling documents designed to make onboarding more efficient for RIAs and more convenient for clients.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print