| ESI Compliance | Field Notice 2021-04 February 10, 2021 |
Massachusetts Fiduciary Rule
In March 2020, Massachusetts published a new Fiduciary Rule, with an enforcement date of September 1, 2020. Although it is similar to the heightened requirements that came with Regulation Best Interest (“Reg BI”), there are some differences of which Registered Representatives (“RR”) who are licensed in Massachusetts should be mindful.
Background
As you know, Reg BI took effect on June 30, 2020. While not a fiduciary standard, it requires that you act in your retail customers’ best interest when making recommendations, without placing your (or the Firm’s) interests ahead of your customers’. Your best interest obligation is satisfied if you comply with four additional obligations, specifically: disclosure, care, conflicts of interest, and compliance. These changes were previously communicated to you through series of Reg BI trainings available on the ESI website (www.equity-services.com).
In contrast, the Massachusetts regulation expressly adopts a fiduciary standard. It applies to both current and prospective customers but excludes certain institutional clients. In an effort to strengthen investor protections, it adopts a duty of loyalty for broker dealers and their RRs, requiring that investment advice and recommendations be provided “without regard to the financial or any other interests of any party other than the customer.”
What does this mean?
Under the Massachusetts rule, disclosing conflicts alone does not satisfy these new requirements. Broker dealers and their RRs must “make all reasonably practicable efforts to avoid conflicts of interest, eliminate conflicts that cannot reasonably be avoided, and mitigate conflicts that cannot reasonably be avoided or eliminated.” To that end, the regulations state that “[i]t shall be presumed to constitute a breach of the duty of loyalty for a broker dealer or an agent to [make a recommendation, if it] . . . is made in connection with any sales contest.” RRs licensed in Massachusetts need to be mindful of these enhanced standards when making recommendations to their Massachusetts customers.
Impact on incentive programs
These standards will affect qualification for some of the sales contests in which you may have participated in the past and for those in which you may qualify in the future. For example, commissions earned through the sale of securities to Massachusetts residents, or commissions earned by Massachusetts based RRs, after September 1, 2020 cannot count toward qualification for sales contests.
Please note that credits associated with incentives offered by the home office (e.g. Presidents Club, ESI Elite Symposium, etc.) will be calculated to ensure compliance with the Massachusetts Fiduciary Rule. Additionally, agency incentives that strictly utilize club credits, as calculated by the home office, will also be in compliance with the Mass Rule.
Questions
If you have any questions, contact your Branch Office Supervisor or you can reach ESI Compliance at 800-344-7437 or ESICompliance@nationallife.com.
| EFA Compliance | Field Notice 2021-05 February 12, 2021 |
Form ADV Part 2A & 2A-Appendix 1 Update
Effective February 12, 2021, ESI Financial Advisors (“EFA” or “the Firm”) updated its Form ADV Part 2A (ES0408) and ADV Part 2A-Appendix 1 (ES0408A) disclosure brochures (“Brochures”) to reflect changes to the Illuminations platform pricing.
The Brochures describe the various products and services offered by EFA, and provide required disclosure of fees, disciplinary events, and conflicts of interest. Note that delivery of a brochure is not required for accounts on which EFA acts in a solicitor’s capacity.
The updated versions of these forms are available on the ESI Illuminations website and through the NLG website, via MerrillConnect. Please destroy and discontinue use of any previous versions of these disclosure documents, and only use the current versions.
SUMMARY OF CHANGES
The ADV Part 2A (Item 5) and the ADV Part 2A-Appendix 1 (Item 4) have been updated to incorporate the implementation of asset-based pricing and related disclosures and conflicts. The changes also incorporate the closing of the ESI Illuminations Flagship program to new investors, effective 3/17/2021.
DELIVERY REQUIREMENTS
ADV Part 2A
The Form ADV 2A must be delivered to all advisory clients at or before the time of entering into an investment advisory agreement. This includes clients with accounts in one or more of the following programs:
- ESI Illuminations;
- EFA Financial Planning/Consulting Agreements;
- American Funds Retirement Plan Platform;
- AssetMark (adviser model);
- Morningstar;
- Saratoga Advantage Trust; and
- SEI
- TD Ameritrade Retirement Plan Platform.
ADV Part 2A-Appendix 1
The Form ADV 2A – Appendix 1 is specific to the Firm’s wrap program (i.e. ESI Directions) and must be delivered to all advisory clients with accounts in the ESI Directions program at or before the time of entering into an investment advisory agreement.
QUESTIONS
If you have any questions regarding the Form ADV 2A or Form ADV 2A-Appendix 1, please contact ESI Compliance at 800-344-7437.
TC119621(0221)1