NY State Senate Bill S2872A

Archive: Last Bill Status - In Senate Committee Judiciary Committee

Introduced
In Committee
On Floor Calendar
- Passed Senate
- Passed Assembly
Delivered to Governor
Signed/Vetoed by Governor

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Actions

view actions (4)

	Assembly Actions - Lowercase Senate Actions - UPPERCASE
Jan 08, 2020	referred to judiciary
May 22, 2019	print number 2872a
May 22, 2019	amend and recommit to judiciary
Jan 30, 2019	referred to judiciary

Bill Amendments

Original

A (Active)

Original

A (Active)

S2872 - Details

See Assembly Version of this Bill:: A2476
Current Committee:: Senate Judiciary
Law Section:: General Obligations Law
Laws Affected:: Add Art 6 §§6-101 - 6-103, Gen Ob L
Versions Introduced in Other Legislative Sessions:: 2015-2016: A6933
2017-2018: A2464
2021-2022: A1026
2023-2024: A675

S2872 - Summary

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.

S2872 - Sponsor Memo

 
BILL NUMBER: S2872

SPONSOR: HOYLMAN
 
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:

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

 
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 U.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.

 
LEGISLATIVE HISTORY:

2017-18: A.2464 (Dinowitz) - Third Reading Calendar
2015-16: A.6933 (Dinowitz) - Referred to Judiciary

 
FISCAL IMPLICATIONS:

None to the State.

 
EFFECTIVE DATE:
This act shall take effect on the first of January next succeeding the
date on which it shall have become law.

S2872 - Bill Text download pdf


                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  2872

                       2019-2020 Regular Sessions

                            I N  S E N A T E

                            January 30, 2019
                               ___________

Introduced  by  Sen. HOYLMAN -- read twice and ordered printed, and when
  printed to be committed to the Committee on Judiciary

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:

  Section  1.  The  general  obligations  law is amended by adding a new
article 6 to read as follows:
                                ARTICLE 6
                       INVESTMENT TRANSPARENCY ACT
SECTION 6-101. APPLICATION.
        6-102. REQUIRED DISCLOSURE.
        6-103. ENFORCEMENT.
  § 6-101. APPLICATION. THE PROVISIONS OF THIS ARTICLE ARE APPLICABLE TO
INVESTMENT ADVISORS CURRENTLY NOT SUBJECT TO A FIDUCIARY STANDARD  UNDER
EXISTING  STATE  AND  FEDERAL  LAWS  OR REGULATIONS OR BY ANY APPLICABLE
STANDARDS OF PROFESSIONAL CONDUCT. "NON-FIDUCIARY  INVESTMENT  ADVISORS"
SHALL  INCLUDE,  BUT NOT BE LIMITED TO INDIVIDUALS AND INSTITUTIONS THAT
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.
  § 6-102. REQUIRED DISCLOSURE.  1.  NON-FIDUCIARY  INVESTMENT  ADVISORS
SHALL  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. SUCH  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

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

                                                           LBD00750-01-9

S. 2872                             2

INVESTMENTS MAY NOT HAVE  THE  BEST  COMBINATION  OF  FEES,  RISKS,  AND
EXPECTED  RETURNS  FOR  YOU." THE NON-FIDUCIARY INVESTMENT ADVISOR SHALL
PROVIDE A COPY OF THE DISCLOSURE FORM TO THEIR CLIENT.
  2.  A  SIGNED  ACKNOWLEDGEMENT  BY THE CLIENT THAT THIS PLAIN LANGUAGE
DISCLOSURE WAS PROVIDED MUST BE MAINTAINED BY THE NON-FIDUCIARY  INVEST-
MENT ADVISOR ALONGSIDE ANY WRITTEN CLIENT AGREEMENT.
  3.  ANY  INVESTMENT BROCHURES, ADVERTISING MATERIALS, OR OTHER RELATED
PRINTED INFORMATION PROVIDED TO CLIENTS, OR ANY SUBSEQUENT ORAL  INVEST-
MENT  ADVICE  TO  THEM, MUST ALSO INCLUDE SUCH DISCLOSURE SET FORTH IN A
CLEAR AND CONSPICUOUS MANNER. THE NON-FIDUCIARY INVESTMENT ADVISOR SHALL
PROVIDE A COPY OF THE DISCLOSURE FORM TO THEIR CLIENT.
  4. INVESTMENT ADVISORS THAT ARE SUBJECT TO THE  FIDUCIARY  DUTY  UNDER
LAW  OR  APPLICABLE  STANDARDS  OF  PROFESSIONAL CONDUCT WITH RESPECT TO
CERTAIN TYPES OF INVESTMENT ADVICE BUT  NOT  OTHERS,  MUST  DISCLOSE  IN
PLAIN  LANGUAGE THE EXTENT TO WHICH THE FIDUCIARY DUTY DOES AND DOES NOT
APPLY.
  § 6-103. ENFORCEMENT. WHENEVER THE ATTORNEY GENERAL FINDS  THAT  THERE
HAS  BEEN A VIOLATION OF THIS ARTICLE, HE OR SHE MAY PROCEED AS PROVIDED
IN SUBDIVISION TWELVE OF SECTION SIXTY-THREE OF THE EXECUTIVE LAW. CIVIL
PENALTIES UP TO FIVE THOUSAND DOLLARS MAY BE IMPOSED FOR EACH  VIOLATION
OF THIS ARTICLE.
  §  2. This act shall take effect on the first of January next succeed-
ing the date on which it shall have become a law.

S2872A (ACTIVE) - Details

See Assembly Version of this Bill:: A2476
Current Committee:: Senate Judiciary
Law Section:: General Obligations Law
Laws Affected:: Add Art 6 §§6-101 - 6-103, Gen Ob L
Versions Introduced in Other Legislative Sessions:: 2015-2016: A6933
2017-2018: A2464
2021-2022: A1026
2023-2024: A675

S2872A (ACTIVE) - Summary

S2872A (ACTIVE) - Sponsor Memo

 
BILL NUMBER: S2872A

SPONSOR: HOYLMAN
 
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:

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, 'ox 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: "A non-fidu-
ciary investment advisor is not required by law to act solely in the
client's best interest. Federal law, state law, and standards of profes-
sional conduct do not apply a fiduciary standard to my investment recom-
mendations, although other standards may apply. You may ask any advisor
to explain to you the standards that apply to their investment recommen-
dations."

Section 6-103 provides for the enforcement of the act, including penal-
ties.

Section 2 establishes 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 in vestment option
that promises the highest potential return for the lowest possible fee.
As a result, financial professionals that do not abide by the fiduciary
standard may encourage investments that carry higher transaction fees,
or direct investors' money into less advantageous "in house" invest-
ments.

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 U.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.

 
LEGISLATIVE HISTORY:

2017-18: A.2464 (Dinowitz) - Third Reading Calendar
2015-16: A.6933 (Dinowitz) - Referred to Judiciary

 
FISCAL IMPLICATIONS:

None to the State.

 
EFFECTIVE DATE:
This act shall take effect on the first of January next succeeding the
date on which it shall have become law.

S2872A (ACTIVE) - Bill Text download pdf


                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                 2872--A

                       2019-2020 Regular Sessions

                            I N  S E N A T E

                            January 30, 2019
                               ___________

Introduced  by  Sen. HOYLMAN -- read twice and ordered printed, and when
  printed to be committed to the Committee  on  Judiciary  --  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:

  Section 1. The general obligations law is  amended  by  adding  a  new
article 6 to read as follows:
                                ARTICLE 6
                       INVESTMENT TRANSPARENCY ACT
SECTION 6-101. APPLICATION.
        6-102. REQUIRED DISCLOSURE.
        6-103. ENFORCEMENT.
  § 6-101. APPLICATION. THE PROVISIONS OF THIS ARTICLE ARE APPLICABLE TO
NON-FIDUCIARY  INVESTMENT  ADVISORS.   NON-FIDUCIARY INVESTMENT ADVISORS
ARE INVESTMENT ADVISORS NOT SUBJECT TO A FIDUCIARY STANDARD UNDER  STATE
OR FEDERAL LAWS OR REGULATIONS OR BY ANY APPLICABLE STANDARDS OF PROFES-
SIONAL  CONDUCT,  AND MAY INCLUDE, BUT NOT BE LIMITED TO INDIVIDUALS AND
INSTITUTIONS THAT IDENTIFY THEMSELVES TO CONSUMERS AS "BROKERS,"  "DEAL-
ERS," "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.
  § 6-102. REQUIRED DISCLOSURE.  1.  NON-FIDUCIARY  INVESTMENT  ADVISORS
SHALL  MAKE  A PLAIN LANGUAGE DISCLOSURE TO POTENTIAL CLIENTS ORALLY AND
IN WRITING PRIOR TO ENTERING  INTO  ANY  CONTRACT  WITH  SUCH  POTENTIAL
CLIENT  THAT  ENSURES  THE  POTENTIAL CLIENT IS AWARE THAT THE FIDUCIARY

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

                                                           LBD00750-04-9

S. 2872--A                          2

STANDARD DOES NOT APPLY TO THE NON-FIDUCIARY  INVESTMENT  ADVISOR.  SUCH
REQUIRED  DISCLOSURE SHALL STATE THE FOLLOWING: "A NON-FIDUCIARY INVEST-
MENT ADVISOR IS NOT REQUIRED BY LAW TO ACT SOLELY IN THE  CLIENT'S  BEST
INTEREST.  FEDERAL LAW, STATE LAW, AND STANDARDS OF PROFESSIONAL CONDUCT
DO NOT APPLY A FIDUCIARY  STANDARD  TO  MY  INVESTMENT  RECOMMENDATIONS,
ALTHOUGH  OTHER  STANDARDS MAY APPLY. YOU MAY ASK ANY ADVISOR TO EXPLAIN
TO YOU THE STANDARDS THAT APPLY TO  THEIR  INVESTMENT  RECOMMENDATIONS."
THE NON-FIDUCIARY INVESTMENT ADVISOR SHALL PROVIDE A COPY OF THE DISCLO-
SURE FORM TO THEIR CLIENT.
  2.  A  WRITTEN  CLIENT  AGREEMENT  MUST  INCLUDE  A  SEPARATELY SIGNED
ACKNOWLEDGEMENT BY THE CLIENT THAT THIS PLAIN  LANGUAGE  DISCLOSURE  WAS
PROVIDED. THE NON-FIDUCIARY INVESTMENT ADVISOR SHALL MAINTAIN THE SIGNED
ACKNOWLEDGEMENT ALONGSIDE THE WRITTEN CLIENT AGREEMENT.
  3.  INVESTMENT  BROCHURES,  ADVERTISING  MATERIALS,  OR  OTHER RELATED
PRINTED INFORMATION PROVIDED TO POTENTIAL CLIENTS MUST ALSO INCLUDE SUCH
DISCLOSURE SET FORTH IN A CLEAR AND CONSPICUOUS MANNER.
  4. INVESTMENT ADVISORS THAT ARE SUBJECT TO A FIDUCIARY STANDARD  UNDER
STATE  OR  FEDERAL  LAW OR REGULATION OR APPLICABLE STANDARDS OF PROFES-
SIONAL CONDUCT WITH RESPECT TO CERTAIN TYPES OF  INVESTMENT  ADVICE  BUT
NOT  OTHERS,  MUST  DISCLOSE  IN PLAIN LANGUAGE IN WRITING THE EXTENT TO
WHICH THE FIDUCIARY STANDARD APPLIES  IN  THE  CONTEXT  OF  EACH  CLIENT
RELATIONSHIP.
  §  6-103.  ENFORCEMENT. WHENEVER THE ATTORNEY GENERAL FINDS THAT THERE
HAS BEEN A VIOLATION OF THIS ARTICLE, HE OR SHE MAY PROCEED AS  PROVIDED
IN SUBDIVISION TWELVE OF SECTION SIXTY-THREE OF THE EXECUTIVE LAW. CIVIL
PENALTIES  UP TO FIVE THOUSAND DOLLARS MAY BE IMPOSED FOR EACH VIOLATION
OF THIS ARTICLE.
  § 2. This act shall take effect on the first of January next  succeed-
ing the date on which it shall have become a law.

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The New York State Senate

senate Bill S2872A

Sponsored By

Archive: Last Bill Status - In Senate Committee Judiciary Committee

Your Voice

Actions

Bill Amendments

S2872 - Details

S2872 - Summary

S2872 - Sponsor Memo

S2872 - Bill Text download pdf

S2872A (ACTIVE) - Details

S2872A (ACTIVE) - Summary

S2872A (ACTIVE) - Sponsor Memo

S2872A (ACTIVE) - Bill Text download pdf

Comments

senate Bill S2872A

Share this bill

Sponsored By

Brad Hoylman-Sigal

Archive: Last Bill Status - In Senate Committee Judiciary Committee

Your Voice

Actions

Bill Amendments

S2872 - Details

S2872 - Summary

S2872 - Sponsor Memo

S2872 - Bill Text download pdf

S2872A (ACTIVE) - Details

S2872A (ACTIVE) - Summary

S2872A (ACTIVE) - Sponsor Memo

S2872A (ACTIVE) - Bill Text download pdf

Comments