The Massachusetts Securities Division plans to enter the state fiduciary rulemaking ring and is seeking preliminary comment on a proposed regulation that would apply a fiduciary conduct standard on broker-dealers, agents, investment advisers, and investment adviser representatives when dealing with their customers and clients.
The regulators claim that the conduct standard is based on the common law fiduciary duties of care and loyalty and 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.”
The regulation will apply to recommendations to open IRA roll-over accounts, as well as recommendations to open accounts involving asset-based or transaction-based compensation.
The Securities and Exchange Commission recently approved its four-part package of regulations aimed at reforming investment advice standards for brokers and financial advisors.
The SEC’s broker advice rule, Regulation Best Interest, claims to go beyond the current suitability standard and requires broker-dealers to act in the best interest of their retail customers when making an investment recommendation of any securities transaction or investment.
However, the Massachusetts Securities Division claims that the regulation fails to define the key term “best interest,” and sets ambiguous requirements for how longstanding conflicts in the securities industry must be addressed under the new rule.
“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,” said secretary of the Commonwealth William Galvin.
“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.”
Massachusetts regulators also believe the SEC rule fails to indicate whether some of the most problematic practices in the securities industry would be prohibited. Specifically, they claim that the SEC indicated that sales contests limited to specific products or product types would be contrary to that rule, it did not ban broader-based sales contests or quotas.
The Department of Labor also plans to introduce a new fiduciary rule in December 2019 after the previous version was vacated by the Fifth Circuit Court of Appeals last year.
The preliminary comment period for the Massachusetts fiduciary rule will remain open until 5 p.m. on Friday, July 26th.