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A02464 Summary:

BILL NOA02464A
 
SAME ASNo Same As
 
SPONSORDinowitz (MS)
 
COSPNSRGottfried, Ortiz, Steck, Pichardo, Mosley, Blake, Seawright, Bichotte, Cook, Colton, Galef, Buchwald
 
MLTSPNSRDavila, Glick, Simon, Titone
 
Add Art 6 6-101 - 6-103, Gen Ob L
 
Relates to mandating greater levels of disclosure by non-fiduciaries that provide investment advice; requires signed acknowledgement of disclosure informing clients that the advisor owes no fiduciary duty.
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A02464 Actions:

BILL NOA02464A
 
01/20/2017referred to judiciary
05/16/2017reported referred to codes
01/03/2018referred to codes
05/03/2018amend and recommit to codes
05/03/2018print number 2464a
05/08/2018reported
05/10/2018advanced to third reading cal.860
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A02464 Memo:

NEW YORK STATE ASSEMBLY
MEMORANDUM IN SUPPORT OF LEGISLATION
submitted in accordance with Assembly Rule III, Sec 1(f)
 
BILL NUMBER: A2464A
 
SPONSOR: Dinowitz (MS)
  TITLE OF BILL: An act to amend the general obligations law, in relation to mandating greater levels of disclosure by non-fiduciaries that provide investment advice   PURPOSE OR GENERAL IDEA OF BILL: The Investment Transparency Act (ITA) mandates new disclosures by insti- tutions and individuals that provide investment advice, but who are not required by law, professional standards, or their own policy to follow a fiduciary standard of acting in their clients' best interests ("non-fi- duciary investment advisors").   SUMMARY OF PROVISIONS: Section 1 amends the general obligations law by adding a new article 6. Section 6-101 determines that investment advisors currently not subject to a fiduciary standard under existing state and federal laws or regu- lations or by any applicable standards of professional conduct would be subject to this bill. This includes those non-fiduciary investment advi- sors who 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. Section 6-102 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 potential conflict of interest. The disclosure shall read: "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." Section 6-103 provides for the enforcement of the act, including penal- ties. Section 2 sets the effective date.   DIFFERENCE BETWEEN ORIGINAL AND AMENDED VERSION (IF APPLICABLE): The amended version makes a change to the effective date.   JUSTIFICATION: The Investment Transparency Act is based on a report conducted by New York City Comptroller Scott M. Stringer. Many New Yorkers hire financial professionals to manage their retirement or other investments, but have difficulty understanding the distinctions between the titles used by such professionals, their duties, the services they offer, and the fees they pay for those services. Most importantly, many individual investors are do not know whether the financial professional they have hired is required to act in their best interest (the "fiduciary standard"). Financial professionals who adhere to a fiduciary standard are obligated to avoid conflicts of interest and fully disclose and manage, in the client's favor, any conflicts. Consistent with this obligation, fiduci- aries are required to provide prudent and objective analysis and advice, including offering the client low-fee and low-commission investment options. However, existing laws, regulations, and professional standards at the federal and state level only hold certain financial professionals to a fiduciary standard, including Registered Investment Advisors (RIAs) that are registered with the Securities and Exchange Commission (SEC) or a state securities regular; retirement plan managers acting as fiduciaries under the Employee Retirement Income Security Act (ERISA); Certified Financial Planners (CFPs); Chartered Financial Analysts (CFAs); and Certified Public Accountants (CPAs). Other financial professionals, such as broker-dealers, follow a differ- ent norm known as the suitability standard. The suitability standard only requires that brokers guide their clients towards investments "suitable" to the clients' stated investment objectives, means, and age. So as long as an investment conforms to those broad guidelines, the broker is under no legal obligation to choose the investment option that promises the highest potential return for the lowest possible fee. As a result, financial professionals that do not abide by the fiduciary stan- dard may encourage investments that carry higher transaction fees, or direct investors' money into less advantageous "in house" investments. Simply put, a suitability standard allows brokers to put their own interest, or their firms' interest, before the customer's bottom line. High fees, limited transparency, unacknowledged risks, and outright conflicts of interest cost O.S. investors an estimated $8 to $17 billion per year in retirement savings. This means that a conscientious retire- ment saver who expects to retire in 30 years will lose at least 5 to 10 percent of retirement savings due to fees and underperformance compared to more passively indexed funds, or the equivalent of approximately one to three years' worth of withdrawals during retirement. While individuals should be able to choose whatever investments suit their particular needs - including, potentially, higher fee investments - those decisions should only be made with all available information, including whether and to what extent their broker will benefit form a particular investment choice. This bill is designed to provide greater transparency to New York State consumers so that they are empowered to make more informed choices when selected financial professionals and choosing investment vehicles.   PRIOR LEGISLATIVE HISTORY: 2015-16: A.6933 - Referred to Judiciary 2017: A.2464 - Reported to Codes   FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS: None to the State.   EFFECTIVE DATE: This act shall take effect on the first of January next succeeding the date on which is shall have become a law.
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A02464 Text:



 
                STATE OF NEW YORK
        ________________________________________________________________________
 
                                         2464--A
 
                               2017-2018 Regular Sessions
 
                   IN ASSEMBLY
 
                                    January 20, 2017
                                       ___________
 
        Introduced  by  M.  of  A.  DINOWITZ, GOTTFRIED, ORTIZ, STECK, PICHARDO,
          MOSLEY, BLAKE, SEAWRIGHT, BICHOTTE, COOK, COLTON, GALEF,  BUCHWALD  --
          Multi-Sponsored  by  --  M. of A. DAVILA, GLICK, SIMON, TITONE -- read
          once and referred to  the  Committee  on  Judiciary  --  reported  and
          referred  to the Committee on Codes -- recommitted to the Committee on
          Codes in  accordance  with  Assembly  Rule  3,  sec.  2  --  committee
          discharged, bill amended, ordered reprinted as amended and recommitted
          to said committee
 
        AN  ACT  to  amend the general obligations law, in relation to mandating
          greater levels of disclosure by non-fiduciaries that  provide  invest-
          ment advice
 
          The  People of the State of New York, represented in Senate and Assem-
        bly, do enact as follows:
 
     1    Section 1. The general obligations law is  amended  by  adding  a  new
     2  article 6 to read as follows:
     3                                  ARTICLE 6
     4                         INVESTMENT TRANSPARENCY ACT
     5  Section 6-101. Application.
     6          6-102. Required disclosure.
     7          6-103. Enforcement.
     8    § 6-101. Application. The provisions of this article are applicable to
     9  investment  advisors currently not subject to a fiduciary standard under
    10  existing state and federal laws or  regulations  or  by  any  applicable
    11  standards  of  professional conduct. "Non-fiduciary investment advisors"
    12  shall include, but not be limited to individuals and  institutions  that
    13  identify  themselves  to  consumers as "brokers," "dealers," "investment
    14  advisors,"  "financial  advisors,"  "financial   planners,"   "financial
    15  consultants,"  "retirement  planners," "retirement brokers," "retirement
    16  consultants," or by any other term that  is  suggestive  of  investment,
    17  financial planning, or retirement planning knowledge or expertise.

         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD03774-02-8

        A. 2464--A                          2
 
     1    §  6-102.  Required  disclosure.  1. Non-fiduciary investment advisors
     2  shall make a plain language disclosure to clients orally and in  writing
     3  at the outset of the relationship that ensures that individual investors
     4  are  aware  of potential conflicts of interest. Such required disclosure
     5  shall  state  the  following: "I am not a fiduciary. Therefore, I am not
     6  required to act in your best interests,  and  am  allowed  to  recommend
     7  investments  that  may earn higher fees for me or my firm, even if those
     8  investments may not have  the  best  combination  of  fees,  risks,  and
     9  expected  returns  for  you." The non-fiduciary investment advisor shall
    10  provide a copy of the disclosure form to their client.
    11    2. A signed acknowledgement by the client  that  this  plain  language
    12  disclosure  was provided must be maintained by the non-fiduciary invest-
    13  ment advisor alongside any written client agreement.
    14    3. Any investment brochures, advertising materials, or  other  related
    15  printed  information provided to clients, or any subsequent oral invest-
    16  ment advice to them, must also include such disclosure set  forth  in  a
    17  clear and conspicuous manner. The non-fiduciary investment advisor shall
    18  provide a copy of the disclosure form to their client.
    19    4.  Investment  advisors  that are subject to the fiduciary duty under
    20  law or applicable standards of  professional  conduct  with  respect  to
    21  certain  types  of  investment  advice  but not others, must disclose in
    22  plain language the extent to which the fiduciary duty does and does  not
    23  apply.
    24    §  6-103.  Enforcement. Whenever the attorney general finds that there
    25  has been a violation of this article, he or she may proceed as  provided
    26  in subdivision twelve of section sixty-three of the executive law. Civil
    27  penalties  up to five thousand dollars may be imposed for each violation
    28  of this article.
    29    § 2. This act shall take effect on the first of January next  succeed-
    30  ing the date on which it shall have become a law.
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