Maryland and Nevada's actions come as the Securities and Exchange Commission is finalizing its Regulation Best Interest, which requires broker-dealers to act in retail clients' best interests, but stops short of requiring a fiduciary standard of care.

Critics of the SEC's proposal, including two of its sitting commissioners, contend that the regulation does not go far enough to protect investors from investment providers' conflicts of interest.

Nevada's proposal, which is considerably more stringent than Reg BI, was released well after the SEC issued its proposal, indicating that regulators in some states are intent on levying a higher standard of care. Nevada wrote a private right of action into its proposal, giving investors the right to sue in state court. The SEC's proposal does not include a private right of action; the SEC and FINRA would be responsible for enforcing compliance.

Nevada also takes a more prescriptive approach to dual registrants. Brokers that are also registered fiduciary advisers would be presumed fiduciaries under its rule, and not eligible for its exemptions for brokers. Under the SEC's rule, a dually registered broker could rely on Reg BI, and would not be subject to the higher fiduciary standard.

The schism in approach raises the question of whether the SEC's rule will be designed to preempt states' competing regulations. It also raises the specter of eventual legal action. Industry-backed challenges to Nevada and other states' rules are expected, and there is also speculation states could challenge the SEC for promulgating a rule without adequate consumer protections.

The coalescence of federal and state securities laws is likely to come under new scrutiny once the SEC finalizes its rule, which is expected by September.

“There is no indication in proposed Regulation Best Interest that the Commission is seeking to impact broker-dealer duties under state law in any respect,” according to a comment letter to the SEC by the North American Securities Administrators Association.

“This is eminently appropriate,” the letter states. “It is well settled that federal and state securities laws co-exist and that past and present Congresses intend to maintain only limited preemption of state laws in this field. The SEC rule proposal acknowledges that the duties it proposes would align with duties imposed by state law. There is thus no conflict of laws.”

But NASAA's comment letter was written well before Nevada released its proposal.

Others in industry are insisting the SEC clarify that its rule will preempt state regulations.

“We strongly urge the Commission to explicitly state in its final rule that Regulation Best Interest preempts any competing state standards,” wrote Bob Reynolds, president and CEO of Putnam Investments.

“Otherwise, financial service providers could be forced to navigate numerous legal requirements, potentially resulting in different products, services, and costs being made available, depending on the state in which the customer resides,” added Reynolds.