Massachusetts Secretary of the Commonwealth William Galvin has signed off on a proposed rule that would impose a fiduciary conduct standard for broker/dealers, agents, investment advisers and investment adviser representatives providing financial advice to clients in the Commonwealth.
Secretary Galvin said his approval of the proposed fiduciary rule now allows for a formal comment period and eventually for the actual rule text to be promulgated.
“I am proposing this standard because the SEC has failed to provide investors with the protections they need against conflicts of interest in the financial industry with its ‘Regulation Best Interest’ rule,” Galvin said in announcing his decision to advance the proposed rule. “My office has seen firsthand the serious financial harm that investors and savers have suffered as a result of conflicted financial advice. Investors must come first.”
Technically, the state can now offer for comment proposed amendments to two rules known as “950 CMR 12.204” and “950 CMR 12.205,” while adding a new rule “950 CMR 12.207.” Broadly speaking, the proposal would require advisers, brokers and other financial professionals to adhere to a fiduciary conduct standard when dealing with their customers and clients.
Supporters of the Massachusetts proposal say the state-based regulations will be far more effective in tamping down on advisory industry conflicts of interest compared with the national Regulation Best Interest (Reg BI) currently being implemented by the U.S. Securities and Exchange Commission (SEC). Their arguments, shared by supporters of fiduciary rules in other states such as New Jersey, are based on the fact that Reg BI merely requires disclosure of potential conflicts by brokers. Advisers, under both the SEC rule and the state-based proposals, are required to act in a genuine fiduciary capacity.
Various industry groups say the states are overstepping their authority and will cause more harm than good for consumers by implementing a uniform fiduciary standard applying to brokers and advisers. Skeptical groups include the Financial Services Institute (FSI) and the Insured Retirement Institute (IRI).
Responding to Secretary Galvin’s announcement, FSI President and CEO Dale Brown said he has significant concerns about the impact that the rule could have on investor choice.
“The SEC’s Regulation Best Interest (Reg BI) establishes a national standard that enhances investor protection while preserving access to professional financial advice,” Brown suggests. “Massachusetts’ proposal creates differing requirements from those established by Reg BI. This will ultimately limit services and drive up costs for investors through increased confusion and higher compliance costs for financial advisers. Our members are diligently working toward compliance with Reg BI, and we strongly encourage Massachusetts to align its requirements with those of the SEC and other existing regulations. We stand ready to work with the Securities Division on a solution.”