We are issuing the latest update to our series of Alerts regarding New Jersey’s ongoing efforts at establishing a uniform fiduciary standard applicable to all investment advisors and broker-dealers doing business in New Jersey. On October 15, 2018, the New Jersey Bureau of Securities (the “Bureau”) issued a Notice of Pre-Proposal (the “Notice”) soliciting comments for the purpose of amending Section 13:47A-6.3 of the New Jersey Administrative Code, which sets forth examples of dishonest or unethical business practices on the part of brokerage and advisory professionals. The Bureau is considering making it a dishonest or unethical practice not to act in accordance with a fiduciary standard in connection with recommending an investment strategy or the purchase, sale or exchange of securities, or providing investment advisory services.
To that end, the Bureau is soliciting comments on (i) the legal and factual bases for applying a fiduciary standard to all financial services professionals; (ii) the scope of the duty in terms of duration and when it arises; (iii) the types of recommendations that would trigger the duty; and (iv) the scope of the duty in terms of to whom it would be owed.
While no details regarding the proposed fiduciary rule are contained in the Pre-Proposal, the Notice nonetheless makes clear the Bureau’s view as to the propriety of a uniform fiduciary standard. Such a standard “protects investors against the abuses that can result when financial professionals place their own interests above those of their customers.”
Despite the absence of any details concerning the proposed uniform fiduciary standard, what is clear is that the standard of care which the Bureau seeks to impose on broker-dealers would apply in a wide variety of circumstances, i.e., the purchase, sale or exchange of a security or the recommendation of an investment strategy. Interestingly, despite the likely breadth of the uniform fiduciary standard, the Notice is silent whether the standard would apply where the broker-dealer merely recommends that the customer continue to hold a specific security. Of course, that gap in the Notice may be filled in once the Bureau actually issues the proposed rule.
We will update this Alert once the Bureau issues its proposed fiduciary rule.