Under the proposal, all investment registered financial services professionals are required to act in accordance with their fiduciary duty when providing investment advice or recommending an investment strategy, the opening or transfer of assets to any type of account, the purchase, sale or exchange of any security, according to the press release from the New Jersey Bureau of Securities. Failing to do so would constitute "dishonest and unethical practice," according to the proposal.
The proposal also sets forth the following conditions:
- Investment professionals must provide in accordance with both duty of care and duty of loyalty in according to the common law definition of fiduciary duty
- Consider risks, costs and conflicts of interest related to a recommendation or investment advice as well as a customer's investment objectives, financial situation, needs and any other relevant information
- Provide recommendations or advice without regard to the financial interest of the broker dealer, agent, and advisor any affiliated or related entity and its officers, directors, agents, etc.
The proposal notes that the fiduciary duty obligation applies to the execution of a recommendation and shall be not be considered an ongoing obligation but when dual registrants "switch hats" dealing with the same customer the fiduciary obligation applies to the entire relationship on an ongoing basis.
The proposal allows for transaction-based fees in certain circumstances provided the fee is reasonable and is the best of reasonably available options and duty of care is satisfied but presumes that sales contests and other "harmful incentives" are invalid.
It also notes that disclosing a conflict of interest will not satisfy the duty of loyalty.
The proposal is subject to public comment for 60 days. After the Bureau reviews all comments and publishes a Notice of Adoption the rule will become final and take effect 90 days later.
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