S2240

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

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. As used in this act, “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, except as provided in subsection b. of section 2 of this act.

2. a. A non-fiduciary investment advisor shall:

(1) 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. The 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.”;

(2) maintain alongside any written client agreement an acknowledgement signed by the client that the written disclosure required by paragraph (1) of this subsection was provided to the client; and

(3) accompany any investment brochures, advertising materials, or other related printed information, or any subsequent oral investment advice, provided to clients with the written disclosure required by paragraph (1) of this subsection.

b. Any investment advisor that is subject to a fiduciary duty under law or applicable standards of professional conduct with respect to certain types of investment advice, but not others, shall:

(1) make a plain language disclosure to clients orally and in writing at the outset of the relationship that ensures the individual investors are aware of the extent to which the fiduciary duty does and does not apply; and

(2) comply with the other requirements of this section in any investment advice situation in which a fiduciary duty does not apply.

3. Violations of this act shall be punishable by a fine of up to $5,000, which shall be collected and enforced by the Attorney General in a summary proceeding pursuant to the "Penalty Enforcement Law of 1999," P.L.1999, c.274 (C.2A:58-10 et seq.).

4. This act shall take effect on the 60th day next following enactment.

STATEMENT

This bill requires non-fiduciary investment advisors to disclose to clients that they do not have a fiduciary relationship with the client, and are not required to act in the client’s best interests.

As used in the bill, “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. The bill does not apply to investment advisors that are subject to a fiduciary standard under existing State or federal law or regulation or by applicable standards of professional conduct, except that investment advisors who are subject to a fiduciary duty with respect to certain types of investment advice, but not to others, are required to disclose the extent of that fiduciary duty to individual investors.

The bill requires non-fiduciary investment advisors to 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 the potential conflicts of interest. The required disclosure must 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.”

The bill requires non-fiduciary investment advisors to maintain alongside any written client agreement an acknowledgement signed by the client that the written disclosure was provided to the client, and to accompany any investment brochures, advertising materials, or other related printed information, or any subsequent oral investment advice, provided to clients with the written disclosure.

Violations of the bill are punishable by a fine of up to $5,000 which shall be collected and enforced by the Attorney General in a summary proceeding.