The Office of the Secretary of the Commonwealth of Massachusetts is seeking public comments for a state regulation that could set a fiduciary standard of conduct for broker/dealers operating in that state.
The proposal is a direct response to the Securities and Exchange Commission's rule, finalized June 5, on establishing a best interest standard for brokers. Commissioners voted 3-1 to adopt the rule, which critics contend is a weak effort to ensure brokers operate in their client's best interest as it relies largely on disclosing potential conflicts of interest, not eliminating them.
“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,” Secretary of the Commonwealth William Galvin said in a statement late Friday afternoon. “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.”
The new disclosures required by the SEC rules "cannot replace a clear fiduciary standard of conduct, which is the basis for the Division's proposal," the office said in a statement.
Massachusetts' rules would mandate a fiduciary standard of conduct and apply to any recommendations, advice and the selection of account types. The preliminary comment period will be open until 5 p.m. July 26.
Galvin has long been a strict advocate for a fiduciary standard for both advisors and brokers.
In February of 2018, before the Department of Labor’s fiduciary rule was overturned, Galvin filed charges against the brokerage firm Scottrade. He charged the firm with cold-calling prospects and holding sales contests to drum up new business ahead of its merger with TD Ameritrade, a violation of the DOL rule.
Last August, Galvin sent the SEC a letter urging the commission to replace its best interest proposals with a “strong uniform fiduciary standard” that would apply to both investment advisors and brokers, threatening that if the commission failed to do so his state would adopt its own measure “to protect our citizens from conflicted advice by broker-dealers.”
When an appeals court vacated the Department of Labor’s fiduciary rule last year, many states decided to take the fiduciary issue into their own hands.
In April, New Jersey issued a proposed rule for instituting a uniform fiduciary standard for brokers and investment advisors, making it one of the first states do so. Gov. Phil Murphy called it "some of the strongest investor protections in the nation."
The Nevada securities division also issued draft regulations in January stating brokers will have a "fiduciary duty" to clients. Some firms, like Morgan Stanley, threatened to pull out of the state if the rule went forward.
A similar bill introduced in Maryland was voted down last month by that state's Senate Finance Committee.
