Massachusetts is moving forward on a proposal to enact a fiduciary standard that would apply to both broker/dealers and investment advisors, according to an announcement from Secretary of the Commonwealth William Galvin, who signed off on the new regulations Friday.
In a statement, Galvin said the regulations were in direct response to the Securities and Exchange Commission’s Regulation Best Interest rule, which will be implemented next June. Galvin said the SEC had “failed to provide investors with the protections they need against conflicts of interest in the financial industry.”
“My office has seen firsthand the serious financial harm that investors and savers have suffered as a result of conflicted financial advice,” he said. “Investors must come first.”
The proposed rule would pertain to all broker/dealers and advisors, mandating they offer advice based on what is best for customers without regard for their own interest. According to Galvin, the proposed rule would be “based on the common law fiduciary duties of care and loyalty,” and would apply to advisors’ interactions with individual investors, municipalities and pension plans.
On June 14, only several weeks after SEC commissioners voted 3-1 to adopt Reg BI, Galvin announced he was seeking public comments for a proposed fiduciary standard for the Bay State. While Galvin enjoyed support from state Attorney General Maura Healey and the Public Investors Advocate Bar Association, the proposal faced considerable oppositions from facets of Boston’s business community. In a June 24 letter about the proposed regulation, Greater Boston Chamber of Commerce President and CEO James E. Rooney wrote that a fiduciary rule for Massachusetts would be “overwhelmingly negative” for broker/dealers and retail investors alike.
“The cost of doing business will increase for broker/dealers, while the menu of services they are able to offer clients will decrease,” the letter stated. “Long-term, this will pose a risk to average investors’ ability to build savings and wealth.”
Massachusetts has not been alone in proposing more robust fiduciary standards in response to the SEC’s passage of Reg BI. New Jersey is in the midst of a public comment period for a potential fiduciary rule from the state’s Securities Bureau, with other states (including Nevada and Maryland) proposing their own legislation or regulation with varying levels of success. These moves by states to enact stronger fiduciary protections will presumably lead to court challenges by opponents arguing that a uniform federal standard is more appropriate.
According to Galvin’s office, the next step in the process is a hearing on the regulations, which will be announced at a later date.