The Bay State isn’t waiting for next month’s third try at a fiduciary standard from the Department of Labor.
Instead, Massachusetts’ Secretary of the Commonwealth William Galvin, the state’s chief securities regulator, signed off on new regulations that would impose a uniform fiduciary conduct standard on broker-dealers, agents, investment advisors, and investment advisor representatives when dealing with their customers and clients.
A hearing on the proposed regulations, which were filed with Galvin’s Publications & Regulations Division on Friday, will be announced at a later date.
The proposed fiduciary conduct standard would require financial professionals to treat their customers and clients with “utmost care and loyalty.”
Financial recommendations and advice would be required to be based on what is best for the customers and clients, without regard to the interests of the broker-dealer, advisory firm, and its personnel.
The conduct standard is based on the common law fiduciary duties of care and loyalty.
The proposed changes to existing regulations are “expected to increase accountability in the financial industry and protect investors by subjecting investment advice to a true fiduciary standard. Municipalities and pension plans would receive the full protection of the heightened conduct standard, along with individual investors.”
“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 a statement. “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.”
Reg BI Opposition
Galvin had strongly opposed Regulation Best Interest (Reg BI), recently passed by the SEC.
“The Proposals address the most fundamental of investor protection issues: the duties that providers of investment advice owe their customers and clients,” Galvin wrote in a letter to SEC Chairman Jay Clayton last year. “As a regulator, I have seen the grievous harm suffered by Main Street investors who mistakenly trusted and relied on conflicted investment advice. The Commission now has the opportunity of a generation to protect them.”
Unfortunately, he added, “the Proposals are inadequate to provide this protection,” and he urged the Commission to replace the current Proposals with a strong unifo1m fiduciary standard, comparable to the standard applicable under the Investment Advisers Act of 1940, that will apply to advice provided to retail investors by both investment advisers and broker-dealers.
“If the Commission does not adopt a strong and uniform fiduciary standard, Massachusetts will be forced to adopt its own fiduciary standard to protect our citizens from conflicted advice by broker-dealers.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
