Effective January 1, 2016, SB 266 establishes new regulations upon any investment advisers or dealer-brokers who are granted custody of or discretionary authority over a client’s funds in the state of New Hampshire, including the procurement of a surety bond.
Defining Dealer-Brokers and Investment Advisers
Due to an abundance of different industry titles, it can sometimes be unclear as to what kind of work a certain professional actually does. This is especially true when it comes to the responsibilities of investment advisers and dealer-brokers as they pertain to clients.
Investment advisers, as their name implies, advise clients in regards to various securities, such as stocks and bonds and are required to be registered with either the Securities Exchange Commission or a state securities regulator. They must also pass the Series 66 exam and either the Series 65 or Series 7 exam in order to be licensed. Investment advisers have also been labeled as fiduciaries by the US Supreme Court, meaning that they have a legal obligation to provide financial advice in their clients’ best interest.
Dealer-brokers actually handle the investment transactions for their clients and, like investment advisers, must be registered with the SEC as well as the Financial Industry Regulatory Authority. They must also pass the Series 7 and 63 licensing exams before operating as a broker-dealer. Unlike investment advisers, a broker-dealer has no legal obligation to make recommendations in the best interest of their client, as they are typically compensated via commission and, therefore, may be looking to benefit themselves as well as their clients. However, the SEC does have regulations in place requiring dealer-brokers to make reasonable recommendations and let their clients know if any conflicts of interest exist.
The New Legislation and Surety Bond
On July 27, 2015, Governor Hassan signed SB 266 in order to comprehensively reform securities regulations in New Hampshire. Upon passage, Governor Hassan issued a statement saying that the act was signed, “with a focus on investor protection and reducing hurdles for businesses trying to raise the capital that they need.” The act effectively replaces the state’s current securities act with legislation that resembles the 2002 Model Securities Act, after which 18 other states have also modeled legislature in an effort to more closely match federal securities laws. A complete list of key changes brought on by the passage of this legislation may be found on the New Hampshire Secretary of State website.
Among other changes brought on by SB 266 is the requirement that dealer-brokers or investment advisers who have custody or discretionary authority over the funds of their clients must obtain either a surety bond or insurance. The exact bond amount, not to exceed $100,000, will be determined by the Secretary of State. The bond or insurance must permit an action by a person to enforce any liability so long as the action is taken within the time limitations in RSA 421-B:5-509(j)(2). That is to say, the bond is in place to protect any individual who suffers a loss as a result of any fraudulent or negligent acts committed by the investment adviser or dealer-broker and may be entitled to financial restitution, so long as the claim is made within an established time frame.
For additional information on SB 266 and the bond or insurance requirement, New Hampshire’s Securities Regulation may be reached by phone or email.
