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New Financial Planning Rules Protect Buyers from Unnecessary Fees

As the federal government signals its intention to roll back financial regulations put in place by the Obama administration following the financial crisis, Nevada is one of a growing number of states to step in and impose its own regulations on financial institutions and advisors.

Senate Majority Leader Aaron Ford sponsored a bill this year – SB383 – to extend rules governing financial planners to broker-dealers, sales representatives, and investment advisors.

The bill would require financial planners to act in their clients' best interests, not their own.

“The issue is ensuring that a client’s best interest is being considered when we’re talking about investment advice as opposed to a commission for example,” Ford explained to KNPR's State of Nevada. 

Ford said part of the issue is that the lines that once separated financial planners, brokerage dealers and investment advisors have blurred and people do not often know who the advisor is working for.

The website for the Nevada Legislature lists exhibits for and against the bill. One person who supported the bill wrote about a 90-year-old woman who was sold a 10-year annuity – with fees – by a broker at her bank. So, this client wouldn't actually see a return on her annuity until she reached 100.

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Senator Ford pointed out that existing state law allowed the woman who bought the annuity to get her money back, once her family members intervened. But he said this new law would mandate that she and her family know other options before signing.

Another person testified about two different S&P accounts – accounts that simply invest in the S&P 500. One account charges almost 2 percent more in fees than the other, which means if someone invests $100,000 across both of those accounts with 2 percent more in fees on that investment, it's a difference of $41,000. The sellers, in this instance, made more than $80,000 in fees. 

Ford said under the new law people can choose the investment they want but they have to be informed of the fees for both. The determination will always be the "best interest" of the client not what is "suitable," which was the standard before.

While Ford admits the new law doesn't fix all the potential problems with investing, it does offer recourse if problems are found. There is a fine and the potential for a lawsuit if one of the advisor categories covered in the law is found to not be working in the best interest of the client.

SB383 was signed by Governor Brian Sandoval and took effect July 1, but the state is still working on how, specifically, it will be applied. The Secretary of State's Office is accepting comments.

Guests

State Senate Majority Leader Aaron Ford