Several of the nation's leading broker-dealers are threatening to stop doing business in Nevada if the state moves to impose a fiduciary duty on the industry.
Those firms, including Morgan Stanley, Charles Schwab, TD Ameritrade and Wells Fargo, have all submitted letters to the state warning that if the fiduciary rule took effect, it would effectively eliminate access to low-cost, transactional brokerage services for Nevada residents.
They argue that the liabilities and compliance costs associated with an ongoing fiduciary duty would make it impractical to offer the basic brokerage services favored by low- and middle-income investors.
TD Ameritrade, for instance, writes: "If the proposal is enacted as drafted, the practical effect on TD Ameritrade's self-directed brokerage operations could be to either (a) discontinue offering products and services to residents of the state of Nevada or (b) discontinue providing much of the educational content, tools and other customer support that self-directed clients rely upon ..."
Morgan Stanley puts it more bluntly in its letter: "Absent substantial changes to the proposal, Morgan Stanley will be unable to provide brokerage services to residents of the state of Nevada."
If those comments sound familiar, there's a reason. The language of many of the letters submitted to Nevada bears a striking resemblance to the debate over the Department of Labor's now-defunct fiduciary rule, a regulation that the brokerage industry fought tooth and nail to overturn, ultimately prevailing in court.

One of the leading lobbying firms that worked to kill the Labor Department's regulation,
The exemption to the ongoing fiduciary duty envisioned by Nevada's rule is "so narrow that it is for all intents and purposes unavailable," Mason writes, compelling brokers to raise fees to recoup their compliance costs, which would effectively convert them into fee-based advisory practices.
Officials in Nevada's securities division declined to comment on the threats from the brokerage sector or the timetable for advancing the proposal, saying only that they are reviewing the 56 comment letters they received on the matter.
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The critical comment letters touch on a few common points. The firms and their allied trade groups express support for the concept of a strong standard of care for both brokers and advisors, but urge Nevada to defer to the SEC as it completes work on its proposed Regulation Best Interest, which would create a standard below that of a fiduciary duty. The firms favor a uniform national standard, and some warn that Nevada's rule could get struck down in court for clashing with federal laws like ERISA and the National Securities Markets Improvement Act.
“A state-by-state approach would result in an uneven patchwork of laws that would be duplicative of, different than, and/or in conflict with federal standards,” Wall Street trade group SIFMA say in its comment letter.
But not all of the comments submitted to Nevada authorities are critical of their efforts to impose a higher standard of client care. The North American Securities Administrators Association and the Public Investors Arbitration Bar Association are generally supportive of the rule. The Financial Planning Coalition's letter credits Nevada for its proposal, but calls for it to go even further and establish a framework more in line with the CFP Board's new standards of conduct, which take effect later this year.
In its comment letter, NASAA anticipates the industry argument that federal laws, particularly NSMIA, would preempt Nevada's proposal, but calls such an interpretation "simply an overreach." Nevada's proposal is "entirely consistent with the existing federal and state regulatory structure for broker-dealers," NASAA writes.
For advocates of a strong fiduciary duty who look critically at the SEC's Reg BI proposal, the comments from brokers threatening to cut off services if Nevada's rule takes effect are revealing.
"The firms should be congratulated for their honesty," says Knut Rostad, president of the Institute for the Fiduciary Standard. "To publicly say their brokers cannot be fiduciaries and put the best interest of their clients first advances the discussion and the 'real fiduciary' movement."
Asked if he takes the firms at their word that they will pull up stakes and abandon states that impose fiduciary rules, Rostad replies: "Of course not."