Frequent SEC Reg BI critic William Galvin, Secretary of the Commonwealth of Massachusetts, announced Friday that his Securities Division is seeking preliminary comments on a proposed state fiduciary rule.
It would apply a fiduciary conduct standard on broker-dealers, agents, investment advisors, and investment advisor representatives when dealing with their customers and clients.
The conduct standard requires that financial recommendations and advice must be in the best interest of customers and clients, without regard to the interests of the broker-dealer, advisory firm, and its personnel, according to the Secretary.
The conduct standard is based on “the common law fiduciary duties of care and loyalty.”
“We are 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 recent ‘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,” he continued. “Investors must come first.”
The preliminary comment period will remain open until 5 p.m. on Friday, July 26th.
Comments may be provided at http://www.sec.state.ma.us/sct/.
Fair warning
Galvin has 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.
