ERISA’s Fiduciary “Investment Advice” Rules

June 21, 2019

   

Executive Orders and Memoranda

Date

2/24/2017

Executive Order on Enforcing the Regulatory Reform Agenda dated February 24, 2017, requires each agency to establish a Regulatory Reform Task Force that will, at a minimum, attempt to identify regulations that: (i) eliminate jobs, or inhibit job creation; (ii) are outdated, unnecessary, or ineffective; (iii) impose costs that exceed benefits; (iv) create a serious inconsistency with regulatory reform initiatives and policies; (v) are inconsistent with section 515 of the Treasury and General Government Appropriations Act or the guidance thereunder; or (vi) derive from or implement other Executive Orders or Presidential Directives that have been subsequently rescinded or substantially modified. Each Task Force is required to provide the agency head a report detailing the progress within 90 days of the order. The order extends to, among other agencies, the Department of Labor.

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Executive Order

 

Date

2/3/2017

Presidential Memorandum dated February 3, 2017. Provides for the Department of Labor to conduct an economic and legal analysis of the regulation and rescind the rule if, among other things, it is inconsistent with the Administration's priorities.

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Presidential Memorandum

 

Bills Introduced in the House or Senate

Date

7/12/2017

The House Appropriations Committee on July 12, 2017 released the draft fiscal year 2018 Labor, Health and Human Services, and Education funding bill, which includes funding for programs within the Department of Labor. The draft bill includes a provision that would cause the Department of Labor’s new Fiduciary Rule to be of no force or effect.

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Funding Bill

 

Date

6/8/2017

Affordable Retirement Advice for Savers Act (H.R. 2823),‎ sponsored by Rep. Phil Roe (R-TN), would amend ERISA and the Internal Revenue Code to establish a statutory definition of “investment advice” under the applicable fiduciary provisions. ‎The bill was introduced in the House on June 8, 2017 and was subsequently approved by the Education and the Workforce Committee on July 19, 2017 by a vote of 23-17. 

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H.R. 2823

 

Date

6/8/2017

Affordable Retirement Advice Protection Act (S. 1321), sponsored by Sen. Johnny Isakson (R-GA), would amend ERISA to establish a statutory definition of “investment advice” under the applicable fiduciary provisions. The bill was introduced in the Senate on June 8, 2017. 

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S. 1321

 

Date

4/26/2017

The Financial CHOICE Act of 2017 (H.R. 10), sponsored by Rep. Jeb Hensarling (R-TX), would, among other things, repeal the Department of Labor's new Fiduciary Rule, require further rulemaking on the point to await and be coordinated with similar SEC rulemaking and provide specified standards to be applicable to SEC rulemaking regarding certain fiduciary matters. The bill was introduced in the House of Representatives on April 26, 2017 and was subsequently approved by the House Financial Services Committee on May 4, 2017 by a vote of 34-26.

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H.R. 10

 

Date

1/6/2017

On January 6, Rep. Joe Wilson (R-SC) introduced a bill that would delay the implementation of the DOL Fiduciary Rule for two years after the enactment of his proposed legislation.

 

Administrative Action

Date

10/18/2018

The Fall 2018 Unified Agenda of Regulatory and Deregulatory Actions contains, among other things, an active regulatory action for the DOL with respect to the Fiduciary Rule and Prohibited Transaction Exemptions to the effect that the DOL is now “considering regulatory options in light of the Fifth Circuit opinion” in the Chamber of Commerce case that vacated the amended “fiduciary” rule.

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RIN 1210-AB82

 

Date

4/18/2018

In an action approved by a 4-1 vote, the SEC published for public comment the following: Regulation Best Interest, Disclosure Requirements and Labeling Rules for Financial Professionals, and New Interpretive Guidance Regarding the Standard of Conduct for Investment Advisers. This action, if finalized, would, among other things, generally create a new standard of conduct for broker-dealers under the Securities Exchange Act of 1934, requiring broker-dealers to act in the best interest of retail customers when making recommendations, without putting the broker-dealers’ financial or other interests ahead of the interests of retail customers, and would provide interpretive guidance regarding the scope of investment advisers’ fiduciary obligation under the Investment Advisers Act of 1940. This rule would be separate and apart from the Department of Labor's amended fiduciary rule (which has been vacated by the Fifth Circuit, subject to appeal).

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Regulation Best Interest

Disclosure Requirements

New Interpretive Guidance

Related Newsflash

 

Date

11/27/2017

The U.S. Department of Labor on November 27, 2017 issued an extension extending for an additional 18 months the special transition period relating to the Best Interest Contract Exemption and the Class Exemption for Principal Transactions that were promulgated as part of the new Fiduciary Rule. The stated purpose of the extension is to give the DOL the “time necessary to consider public comments under the criteria set forth in the Presidential Memorandum of February 3, 2017, including whether possible changes and alternatives to these exemptions would be appropriate in light of the comment record and potential input from, and action by, the Securities and Exchange Commission and state insurance commissioners.” The former transition period was from June 9, 2017 to January 1, 2018. The new transition period ends on July 1, 2019. During this extended transition period, relevant investment advice fiduciaries only have to comply with the “Impartial Conduct Standards” to satisfy the exemptions’ requirements and will not be required to enter into a “best interest” contract (in the case of IRAs), adopt certain policies and procedures and provide certain disclosures, in order to be in compliance with the exemptions.

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Extension

Presidential Memorandum

Comment Letter

 

Date

8/30/2017

The U.S. Department of Labor on August 30, 2017 issued a Field Assistance Bulletin confirming that it would not pursue a claim based solely on the failure to comply with the BIC Exemption’s requirements regarding class actions as applied to arbitration agreements. Previously, (i) in July 2017, in the pending Chamber of Commerce case (5th Cir.) regarding the Fiduciary Rule, the DOL acknowledged and admitted in a brief that the BIC Exemption's requirement that a "best interest" contract not contain a bar on class actions (which is contained in the private-right-of-action provisions of the BIC Exemption that are currently suspended) is inconsistent with certain other federal law (at least in the context of arbitrations) and (ii) in August 2017, the DOL submitted a letter in the pending Thrivent v. Acosta (D. Minn.) case stating that the claim there revolving around the requirement in the BIC Exemption relating to class actions “will likely be mooted in the near future.” 

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Field Assistance Bulletin

Brief

Letter

 

Date

8/9/2017

The U.S. Department of Labor on August 9, 2017 submitted a Notice of Administrative Action in the Thrivent v. Acosta litigation (D. Minn.) stating that the Department had submitted a proposal to amend the "best interest contract" exemption and two other exemptions that form a part of the Fiduciary Rule so as to delay until July 1, 2019 the applicability of material portions of those exemptions, and also to extend until that time certain existing transition relief applicable to the exemptions. On August 31, 2017, the DOL published the proposed delay in the Federal Register. Comments on the proposal are due on September 15, 2017.‎

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Proposed Delay

Related Newsflash

 

Date

7/6/2017

Department of Labor publishes in the Federal Register a Request for Information (RFI) regarding the Fiduciary Rule, which seeks, among other things, comments regarding a delay in the January 1, 2018 applicability date of certain provisions of the Best Interest Contract Exemption and also seeks input regarding possible additional exemption approaches or changes to the Fiduciary Rule. Comments regarding a potential delay of the January 1, 2018 applicability date are due on or before July 21, 2017. Responses to all other RFI questions are due on or before August 7, 2017.

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Request for Information

Related Newsflash

 

Date

6/9/2017

Wall Street Journal op-ed by Secretary Acosta announcing that the Fiduciary Rule will generally become applicable on June 9 (with full implementation on January 1, 2018, pending any change in policy based on the DOL’s continuing review). 

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Wall Street Journal op-ed



 

Department of Labor issues Conflict of Interest FAQs (Transition Period) providing information about compliance with the Fiduciary Rule during the transition period between June 9, 2017 and January 1, 2018. 

 

Date

5/22/2017

Field Assistance Bulletin 2017-02 of the Department of Labor announcing with respect to the Fiduciary Rule that, during the phased implementation period ending on January 1, 2018, the DOL will not pursue claims against fiduciaries who are working diligently and in good faith to comply with the Fiduciary Rule, or treat such fiduciaries as being in violation of the rule. 

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Field Assistance Bulletin

Related OnPoint

 

 

Date

4/7/2017

Final Rule by the Department of Labor (i) generally extending for 60 days, until June 9, 2017, the applicability date of the new fiduciary rule defining who is a fiduciary under ERISA and the Code and of the related Best Interest Contract ("BIC") Exemption, and (ii) providing that compliance with conditions of the BIC Exemption (and with the amendments to Prohibited Transaction Exemption 84-24) other than adherence to the "Impartial Conduct Standards" is not required until January 1, 2018. 

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Final Rule

Related Newsflash

Related OnPoint

 

 

Date

3/10/2017

Field Assistance Bulletin 2017-01 of the Department of Labor announcing (on March 10, 2017) a temporary enforcement policy pursuant to which (i) if the DOL extends the April 10 applicability date of the new fiduciary rule (and related exemptions) but does so after April 10, the DOL will not initiate any enforcement action because of noncompliance during the "gap" period, and (ii) if the DOL ultimately does not extend the April 10 applicability date, the DOL will not initiate any enforcement action because of noncompliance, provided that all of the applicable conditions of the rule (and the exemptions) are satisfied within a reasonable period after announcement that the applicability date will not be extended. Subsequently (on March ‎27, 2017), the IRS in Announcement 2017-4 issued corresponding non-enforcement temporary relief with respect to the application of excise taxes under Section 4975 of the Internal Revenue Code.

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Field Assistance Bulletin

Announcement 2017-4

Related Newsflash

 

Date

3/2/2017

Proposed rule by the Department of Labor providing for a 60-day delay, until June 9, 2017, in the applicability date of the new fiduciary rule under ERISA. The notice-and-comment period for the delay is 15 days, and the DOL has also invited comments on various considerations relating to the rule itself and provided for a comment period therefor of 45 days.

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Proposed Rule

Related Newsflash

 

Date

2/3/2017

Press Release of the Department of Labor relating to a possible delay in the applicability date of the fiduciary rule (Feb. 3, 2017). (Coordinated with the February 3, 2017 Presidential Memorandum relating to the resolution.

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Press Release

Related Newsflash

 

Legislative and Administrative Reports

Date

10/27/2017

The U.S. Department of the Treasury issued a report on October 27, 2017, pursuant to Executive Order 13772, titled “A Financial System that Creates Economic Opportunities, Asset Management and Insurance,” which addresses, among other things, the Fiduciary Rule. The report (i) provides that the Treasury Department supports the DOL’s efforts to reexamine the implications of the Rule and to delay full implementation “until the relevant issues . . . are evaluated and addressed to best serve investors, and believes that such assessment and resolution of standard of conduct issues should include participation by the SEC and other regulators,” (ii) addresses administrative oversight over the standards of care applicable to the annuities market and (iii) recommends that the DOL and the SEC “engage with state insurance regulators regarding the impact of standards of care on the annuities market . . . in order to achieve consistent standards of conduct across product lines.”

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Report

Executive Order 13772

 

Date

2/2/2017

Letter from ‎Rep. Sessions (Chair. of the House Comm. on Rules) to Pres. Trump urging an immediate announcement of a delay in the applicability of the fiduciary rule (Feb. 2, 2017).

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Letter

 

Date

12/14/2016

Report of the House Freedom Caucus (Dec. 14, 2016) recommendation #138 (remove “Definition of the Term ‘Fiduciary’; Conflict of Interest Rule – Retirement Investment Advice” at 29 CFR 2510.3-21(c))).

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Report

 

Judicial Activity

Date

5/22/2018

Decision in Chamber of Commerce v. Alexander Acosta, Secretary of Labor, dated May 22, 2018, in which the U.S. Court of Appeals for the Fifth Circuit denied motions made by the States of California, New York and Oregon to (i) reconsider the Court’s earlier denial of the States’ motion for leave to intervene in the underlying action (in which the Fifth Circuit vacated the DOL Fiduciary Rule) and (ii) permit the filing of a petition for rehearing en banc seeking review of the Court’s order decision the motion to intervene.

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Decision

 

Date

5/2/2018

Decision in Chamber of Commerce v. Alexander Acosta, Secretary of Labor, dated May 2, 2018, in which the U.S. Court of Appeals for the Fifth Circuit denied motions made by the States of California, New York and Oregon, and by the AARP, for leave to intervene in the underlying action in which the Fifth Circuit vacated the DOL Fiduciary Rule.

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Decision

 

Date

3/15/2018

Opinion in Chamber of Commerce v. Alexander Acosta, Secretary of Labor, dated March 15, 2018, in which the U.S. Court of Appeals for the Fifth Circuit reversed the ruling of the U.S. District Court for the Northern District of Texas, and vacated the DOL Fiduciary Rule, finding that the DOL had exceeded its regulatory authority in promulgating the rule and that the rule’s definition of “fiduciary” was unreasonable.

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Opinion

Ruling

Related Publications

 

Date

2/21/2017

Order dated February 21, 2017, in Thrivent Financial v. Edward Hugler, in which Judge Susan Richard Nelson of the U.S. District Court for the District of Minnesota denied the DOL’s request for a stay in the proceedings while the DOL reviews the issues raised in the President’s Memorandum of February 3.

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Order

Request for a Stay

President's Memorandum

 

Date

2/17/2017

Opinion in Market Synergy Group v. U.S. Dep’t of Labor dated February 17, 2017, in which the U.S. District Court for the District of Kansas upheld the DOL’s amended Prohibited Transaction Exemption 84-24, which was issued in connection with the DOL’s New Fiduciary Rule.

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Opinion

 

Date

2/8/2017

Opinion in Chamber of Commerce v. Edward Hugler, Acting Secretary of Labor dated February 8, 2017, in which Chief Judge Barbara M.G. Lynn of the United States District Court for the Northern District of Texas denied the plaintiffs’ motion for summary judgment and upheld the DOL Fiduciary Rule. The court also denied the defendants’ motion, submitted on February 8, to stay the proceedings while the DOL reviews the issues raised in the Presidential Memorandum of February 3. The DOJ's motion states that the DOL is assessing its legal options for delaying the applicability date of the rule. On February 24, the plaintiffs filed a notice of appeal, and then, on March 11, moved for an injunction to block the rule pending the appeal, which the district court denied on March 14. On March 21, the plaintiffs filed an emergency motion with the Fifth Circuit seeking an injunction to block the rule pending appeal, or alternatively expediting the appeal. On March 29, defendants filed its opposition. On April 5, the Fifth Circuit denied both motions.

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Opinion

Motion

President's Memorandum

Notice of Appeal

Injunction

Denied Injunction

Emergency Motion

Opposition

Denied Motions

 

The list below includes some of the state and industry-level initiatives that would seek to impose fiduciary-like obligations on financial-services organizations, following the failed attempt by the U.S. Department of Labor (DOL) to amend ERISA's “investment advice” fiduciary rule. Our OnPoint relating to efforts by the states to adopt fiduciary-type rules may be found here, and our resource page collecting our OnPoints relating to the DOL's efforts to adopt an amended fiduciary rule may be found on Dechert's Fiduciary Rule Resource Page.

State (and Certain Other) Fiduciary Laws

State

Name

Description

Massachusetts

Proposed Regulations – Fiduciary Conduct Standard 

Applies to:

Broker-dealers, agents, investment advisers, and investment adviser representatives.

The Massachusetts Securities Division has circulated for preliminary comment a proposed regulation that would impose a fiduciary conduct standard on investment advisers, investment adviser representatives,
broker-dealers and agents. The proposed regulation provides that, when making a recommendation or providing investment advice, a broker-dealer, agent or adviser must use the care, skill, prudence, and diligence that a prudent person acting in a like capacity and familiar with such matters would use taking into consideration all of the facts and circumstances. In addition, a broker-dealer, agent or adviser must avoid conflicts of interest and make recommendations and provide investment advice without regard to the financial or any other interest of the broker-dealer, agent, adviser, any affiliated or related entity or its officers, directors, agents, employees or contractors, or any other third-party.

Status/Notes

Preliminary Solicitation of Public Comments: Fiduciary Conduct Standard for Broker-Dealers, Agents, Investment Advisers, and Investment Adviser Representatives

The last day to submit written comments to the Office of the Secretary of the Commonwealth was July 26, 2019.

New Jersey

Fiduciary Duty
Proposed Rule

Applies to:

Broker-dealers, agents, investment advisers, and investment adviser representatives.

The New Jersey Bureau of Securities has proposed a rule that describes what constitutes a “recommendation,” imposes a uniform “fiduciary standard” on brokers and advisers, and creates a presumptive breach if the affected broker does not “recommend” the best reasonably available option and fee arrangement.  Failure to act in accordance with a fiduciary duty to a customer when providing investment advice or when making a recommendation for an investment strategy, the opening of, or transfer of assets to, any type of account, or the purchase, sale or exchange of any security, would be a dishonest or unethical business practice.  To satisfy the fiduciary duty, a broker-dealer, agent, or adviser must satisfy both a duty of care and a duty of loyalty. 

Status/Notes

Comments on this proposed rule were originally due by June 14, 2019. The comment period was extended to July 18, 2019. In addition, the New Jersey Bureau of Securities held a public hearing in connection with the notice of proposal on July 17, 2019.

Rule Proposal Reporter: 51 N.J.R. 493(a)

NAIFA Trustee Testifies at New Jersey Fiduciary Hearing

Statement of Kevin Carroll On Behalf of the Securities Industry and Financial Markets Association

Testimony of the Insured Retirement Institute

Testimony of David T. Bellaire, Esq. On Behalf of the Financial Services Institute

Nevada

An Act relating to financial planners . . .

Applies to:

Any broker-dealer, sales representative, investment adviser or representative of an investment adviser.

Revises the definition of “financial planner” in the state’s existing fiduciary law to include broker-dealers, sales representatives, investment advisers or representatives of an investment adviser. Existing Nevada law provides as follows:

"A financial planner has the duty of a fiduciary toward a client. A financial planner shall disclose to a client, at the time advice is given, any gain the financial planner may receive, such as profit or commission, if the advice is followed. A financial planner shall make diligent inquiry of each client to ascertain initially, and keep currently informed concerning, the client’s financial circumstances and obligations and the client’s present and anticipated obligations to and goals for his or her family."

Status/Notes

Enacted. 383, 2018 Leg., 79th Sess. (Nev. 2017).

Draft regulations released January 18, 2019

 

Connecticut

An Act requiring administrators of certain retirement plans to disclose conflicts of interest

Applies to:

Any company that administers a retirement plan offered by a political subdivision of the state to the employees of such political subdivision.

Any company that administers a retirement plan offered by a political subdivision of the state must disclose the fee ratio and return, net of fees for each investment under the plan; and the fees paid to any person who, for compensation, engages in the business of providing investment advice to participants in the plan.

Status/Notes

Enacted.

2017 Conn. Pub. Acts No. 17-142.

New York

Suitability and Best Interests in Life Insurance and Annuity Transactions

Applies to:

Any insurance producer or insurer.

Sellers of insurance and annuity products in the state are required to only consider their clients' best interests when recommending life insurance and annuities.

Contains exemptions for policies and contracts that fund ERISA and other plans.

Status/Notes

This regulation is adopted with an effective date of Aug. 1, 2019.

Final Adoption of First Amend. to N.Y. Comp. Codes R. & Regs. Tit. 11, section 224

New York

Investment Transparency Act

Applies to:

Investment advisors currently not subject to a fiduciary standard under existing state or federal laws or regulations.

"Non-fiduciary investment advisors" include, but are not limited to, individuals and institutions that identify themselves to consumers as "brokers," "dealers," "investment advisors," "financial advisors," "financial planners," "financial consultants," "retirement planners," "retirement brokers," "retirement consultants," or by any other term that is suggestive of investment, financial planning, or retirement planning knowledge or expertise.

Non-fiduciary investment advisors shall make a plain language disclosure to clients orally and in writing at the outset of the relationship that ensures that individual investors are aware of potential conflicts of interest. Such required disclosure shall state the following:

"I am not a fiduciary. 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."

A copy of such disclosure shall be provided to the client, and a signed acknowledgment by the client that such disclosure was provided must be maintained by the non-fiduciary investment advisor. Any investment brochures, advertising materials, or other related printed information provided to clients, or any subsequent oral investment advice to them, must also include such disclosure.

Investment advisors that are subject to a fiduciary duty with respect to certain types of investment advice, but not others, must disclose in plain language the extent to which the fiduciary duty does and does not apply.

Status/Notes

Proposed in the House of Assembly.

Assembly Bill 2476 (N.Y. 2019)

Maryland

Financial Consumer Protection Act of 2019

Applies to:

Investment advisors, broker-dealers, broker-dealer agents, insurance agents, covered advisers and investment adviser representatives.

Specified financial professionals are fiduciaries and have a duty to act in the interest of the customer without regard to the financial or other interest of the person or firm providing advice.

Status/Notes

S.B. 786, 2019 Leg. Reg. Sess. (Md. 2019).

In January of 2019, the Maryland Financial Consumer Protection Commission issued a report recommending that the Maryland General Assembly “pass legislation that provides that broker-dealers, broker-dealer agents, insurance producers, investment advisers, or investment adviser representatives who offer advisory services or hold themselves out as advisors, consultants, or as providing advice, would be held to a fiduciary duty to act in the best interest of the customer without regard to the financial or other interest of the person or firm providing the advice.” On April 3, 2019, the bill received an “Unfavorable Report” by the Maryland Senate Finance Committee. The bill was not passed and the legislative session ended on April 8, 2019.

New Jersey

An Act concerning non-fiduciary investment advisors and supplementing Title 56 of the Revised Statutes

Applies to:

"Non-fiduciary investment advisor" means any individual or institution that advertises or uses in self identification any term that is suggestive of investment, financial planning, or retirement planning knowledge or expertise, including, but not limited to, broker, dealer, investment advisor, financial advisor, financial planner, financial consultant, retirement planner, retirement broker, or retirement consultant.

"Non-fiduciary investment advisor" shall not include investment advisors that are subject to a fiduciary duty under existing State or federal law or regulation or by applicable standards of professional conduct.

Generally the same requirements as the New York Investment Transparency Act.

Status/Notes

In Committee.

S.B. 735, 218th Leg., 2018 Sess. (N.J. 2018).

Illinois

Investment Advisor Disclosure Act

Applies to:

Text of the bill is not yet written.

Text of the bill is not yet written.

Status/Notes

In Committee.

H.B. 4753 (Ill. 2018)

NAIC (National Association of Insurance Commissioners)

Suitability in Annuity Transactions Model Regulation (#275)

Applies to:

Insurance producers and insurers.

The most recent draft of model regulation would prohibit an insurance producer or insurer from placing its financial interest above the consumer’s interest when making a recommendation of an annuity product, but would not cause any insurance producer or insurer to be treated as a fiduciary or impose a duty of loyalty.

Status/Notes

Model Regulation.

Working Draft