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.
NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A6933
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
The Investment Transparency Act of 2015 (ITA) mandates new disclosures
by institutions 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-fiduciary 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
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-
Section 2 sets the effective date
The Investment Transparency Act of 2015 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 stand-
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
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.
This is a new bill.
None to the State.
This act shall take effect on January 1, 2016.
STATE OF NEW YORK
2015-2016 Regular Sessions
April 10, 2015
Introduced by M. of A. DINOWITZ, GOTTFRIED, ORTIZ, STECK, PICHARDO,
MOSLEY, BROOK-KRASNY, BLAKE, SEAWRIGHT, BICHOTTE, SILVER, COOK,
COLTON, GALEF -- Multi-Sponsored by -- M. of A. BRENNAN, GLICK, SIMON,
TITONE -- read once and referred 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-
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.
18 § 6-102. Required disclosure. 1. Non-fiduciary investment advisors
19 shall make a plain language disclosure to clients orally and in writing
20 at the outset of the relationship that ensures that individual investors
21 are aware of potential conflicts of interest. Such required disclosure
22 shall state the following: "I am not a fiduciary. Therefore, I am not
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
 is old law to be omitted.
A. 6933 2
1 required to act in your best interests, and am allowed to recommend
2 investments that may earn higher fees for me or my firm, even if those
3 investments may not have the best combination of fees, risks, and
4 expected returns for you." The non-fiduciary investment advisor shall
5 provide a copy of the disclosure form to their client.
6 2. A signed acknowledgement by the client that this plain language
7 disclosure was provided must be maintained by the non-fiduciary invest-
8 ment advisor alongside any written client agreement.
9 3. Any investment brochures, advertising materials, or other related
10 printed information provided to clients, or any subsequent oral invest-
11 ment advice to them, must also include such disclosure set forth in a
12 clear and conspicuous manner. The non-fiduciary investment advisor shall
13 provide a copy of the disclosure form to their client.
14 4. Investment advisors that are subject to the fiduciary duty under
15 law or applicable standards of professional conduct with respect to
16 certain types of investment advice but not others, must disclose in
17 plain language the extent to which the fiduciary duty does and does not
19 § 6-103. Enforcement. Whenever the attorney general finds that there
20 has been a violation of this article, he or she may proceed as provided
21 in subdivision twelve of section sixty-three of the executive law. Civil
22 penalties up to five thousand dollars may be imposed for each violation
23 of this article.
24 § 2. This act shall take effect January 1, 2016.