Don’t Poke the Bear: Nevada Rains on Anti-Fiduciary Rule Parade

It is well established that ERISA comprehensively regulates employee pension and welfare plans, and t hat in the area of its coverage it preempts state laws and regulations. …However, it is also clear that there is a presumption against preemption, and that while ERISA’s preemptive effect is broad, it is not all-encompassing. As the Supreme Court has stated,”[s]ome state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law ‘relate to the plan….”
Duffy v. Cavalier, 215 Cal.App.3d 1517, 1527 (1989)

Most people are familiar with Gordon Gekko’s famous line from the movie “Wall Street”-“greed is good.” Right now, I’m guessing that the Department of Labor, Secretary Acosta, the investment industry and its trade groups are seriously questioning the accuracy of that statement.

Ever since Secretary Acosta assumed his position, he has made no secret of his pro-investment industry, anti-DOL’s new fiduciary rule position. The investment industry has made various requests in an effort to kill or seriously limit the impact of the rule. In each case, Acosta has granted their wishes, even thought the DOL was crested to protect the interests of American workers, not the investment industry. Secretary Acosta, the DOL, the investment industry and its trade groups have essentially thumbed their noses at American plan participants and retirees with indignation, sending the clear message that the DOL does not care about them.

However, there is another familiar saying–“be careful what you wish for.” In this case, you can only bully people for so long before they decide to fight back. The bullying efforts of the DOL and investment industry have now been countered by the state of Nevada’s announcement that the intend to exercise their 10th Amendment  police powers to protect their citizens by holding all stockbrokers and financial adviser in their state to a fiduciary standard.

Pandora’s box is officially open and the investment industry has clearly indicated its concern, and rightfully so. Other states have used legislation and/or court decisions to hold stockbrokers and financial advisers to a fiduciary standard for some time. Nevada’s announcement, and their statement that other states have already contacted them about following their lead, has implications far beyond just ERISA. States adopting a fiduciary standard for stockbrokers and financial advisers apply the standard to all activities of these parties, not just ERISA related activities. Greed is not good.

The investment industry’s response to Nevada’s annoouncement thus far has been a feeble allegation that Nevada’s adoption of a fiduciary standard for stockbrokers and financial advises will create confusion. What the investment industry and its trade groups realize is that that there is nothing they can do legally to prevent Nevada or any other state from creating and enforcing such laws under their 10th Amendment police powers. Likewise, there is nothing that the Trump administration, the DOL or Secretary Acosta can do to prevent Nevada from enacting such laws.

Equally troubling for the investment industry and other opponents of the DOL’s fiduciary standard is the fact that Nevada’s right to so act and the implications of such actions in ERISA cases has already been addressed in a well-reasoned decision, the aforementioned case of Duffy v. Cavalier. With regard to the DOL’s fiduciary rule. more specifically the DOL’s threats to essentially emasculate the Best Interest Contract exemption (BICE), Duffy stands for the proposition that states can enact laws to allow their citizens to protect their financial interests and preserve their access to the state’s court to do so.

Again, such fiduciary standards would apply to all activities of stockbrokers and financial advisers, not just ERISA related activity. Again, as long as states follow the guidelines set out in Duffy, there is absolutely nothing that the DOL, the investment industry or their trade groups can do to prevent any state from exercising its constitutionally protected 10th Amendment rights in enacting such fiduciary standards.

Nobody likes a bully. As they like to say here in the South, Secretary Acosta, the investment industry and its trade groups got greedy, “got too big for their britches,” and as a result, Nevada and other states decided that if the DOL was not going to do its job and protect plan participants and retirees, then they will use their police powers to do so. As a result, the investment industry has simply ensured that its members will face more stringent regulations and liability exposure in all of its activities, and there is nothing they can do to prevent same.

Check and checkmate.

P.S. For those wanting to read the Duffy decision, the decision can be accessed via and searching the site using “Duffy v. Cavalier.”

About jwatkins

I am a securities and ERISA attorney. I am a CFP Board Emeritus™ and an Accredited Wealth Management Advisor™. I am a 1977 graduate of Georgia State University and a 1981 graduate of the University of Notre Dame Law School. I am the author of "CommonSense InvestSense: The Power of the Informed Investor" and " The 401(k)/403(b) Investment Manual: What Plan Sponsors and Plan Participants REALLY Need To Know. " As a former compliance director, I have extensive experience in evaluating the legal prudence of various types of investments, including mutual funds and annuities. My goal is to combine my legal and compliance experience in order to help educate investors and investment fiduciaries on sound, proven investment strategies that will help them protect their financial security and/or avoid unnecessary fiduciary liability exposure.
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