In early April 2025, NASAA amended its model rules for Dishonest or Unethical Business Practices of Broker-Dealers and Agents (“Conduct Rule”) to limit use of the term “advisor” or “adviser” in title, purported credential, or professional designation of a broker dealer, without additionally being licensed as an investment adviser or investment adviser representative. [1] The Conduct Rule amendment is intended to encourage cohesion between federal and state regulations[2].
Background
SEC’s Regulation Best Interest (“Reg BI”) was implemented in June 2020, to establish a “best interest” standard of conduct for broker dealers and their associated persons, which restricted the term “advisor” or “adviser” from broker dealers acting solely in their broker dealer capacity. [3] The SEC later elaborated on the restriction in its Frequently Asked Questions on REG BI, that use of the term “advisor” or “adviser” in name or title causes confusion for retail clients because it “creates a presumption the broker dealer is acting in an investment advisory role” and consequently in the client’s best interest.[4] Broker dealers who are dually registered as an RIA or IAR, municipal advisor, commodity trading advisor, or advisor to a special entity may continue use “adviser” or “advisor” so long as they make full and fair disclosure of material facts relating to the scope and term of the relationship.[5]
NASAA Conduct Rule Effects
While NASAA itself does not have enforcement powers, we can expect its amendment to the Conduct Rule to encourage states to take action. The amendment closely follows the “advisor/adviser” restriction in Reg BI, and is aimed to boost investor protection, create uniformity across federal and state regulations, and provide clarity on obligations and components of conduct.[6]
Implementing NASAA’s Conduct Rule
If you have questions about whether your marketing materials, supervisory procedures, or operating procedures comply with the Reg BI, or you want to be proactive in anticipation of implementation of the Conduct Rule, reach out and we can review your documents. With offices in San Diego, Irvine, Los Angeles, San Francisco, and New York, Shustak Reynolds & Partners, P.C. represents investment advisers, broker-dealers, registered representatives, and high-net-worth investors across the country. We are prepared to help our clients understand and navigate these changes with strategic advice and robust legal representation. Contact Shustak Reynolds & Partners, P.C. today for a confidential consultation.
California’s Clean Slate Act, composed of Assembly Bill 1076 and Senate Bill 731, aims to expand opportunities for individuals with past criminal convictions by allowing automatic record sealing under specific conditions. While these laws provide significant relief at the state level, they do not override federal regulatory requirements—particularly for individuals pursuing licensure in federally regulated activities such as the financial services industry.
Understanding the Clean Slate Act
The Clean Slate Act authorizes automatic sealing of certain arrests and convictions once individuals meet specific eligibility requirements, such as completing probation or serving their sentence without further legal infractions. Senate Bill 731 (SB 731), which went into effect on July 1, 2023, further expanded these provisions by allowing certain felony convictions to be sealed, including those not previously eligible under AB 1076.
However, SB 731 also includes critical exceptions to this automatic relief. Under California Penal Code Section 1203.41(b)(2) and Section 1203.425(a)(1)(H), individuals must still disclose sealed convictions when applying for professional licensure or public employment where disclosure is required by law.
Implications for Financial Advisors
This exception is particularly relevant to licensed financial professionals. The Financial Industry Regulatory Authority (FINRA) requires applicants to disclose detailed criminal history information on Form U4 (Uniform Application for Securities Industry Registration or Transfer). This includes:
All felony charges and convictions.
Misdemeanor charges and convictions involving dishonesty, fraud, bribery, or similar conduct.
Certain arrests and legal proceedings, even if they did not result in conviction.
Unfortunately, the Clean Slate Act does not excuse financial professionals from this requirement.
State vs. Federal Jurisdiction
While the Clean Slate Act applies within the jurisdiction of California law, it does not impact federal regulatory obligations. A record sealed in California may still be visible in federal background checks conducted by agencies such as FINRA, the SEC, or the FBI. State-level sealing does not automatically remove records from federal databases, such as the FBI’s National Crime Information Center (NCIC), unless additional steps are taken to seek federal expungement—which is often difficult to obtain.
Disclosure Obligations: Sealed and Expunged Records
Even if a conviction is sealed or expunged under California law, FINRA requires full disclosure on Form U4. This includes convictions that were later set aside or dismissed. Failure to disclose such information can lead to serious consequences, including denial of registration, disciplinary action, or revocation of licenses. FINRA considers omissions to be violations of its rules, regardless of state-level relief.
Conclusion
While California’s Clean Slate Act marks a major step forward in reducing barriers to employment and licensure for individuals with criminal records, it does not eliminate federal reporting obligations. Financial advisors must remain vigilant in understanding the differences between state relief and federal compliance. When navigating complex regulatory requirements or seeking guidance on professional licensing, the experienced FINRA securities litigation attorneys at Shustak Reynolds & Partners, P.C. are here to help. Our team specializes in securities law, financial services industry disputes, and regulatory defense, offering tailored legal strategies to protect your career and reputation. Contact us today to schedule a complimentary, confidential consultation.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many investment advisors, financial professionals, broker-dealers, registered representatives, investors and businesses. Attorney George C. Miller can be reached in the firm’s San Diego office at (619) 696-9500.
