The Financial Services Industry (FSI) has “significant concerns” with Massachusetts’ fiduciary proposal, which the group says will restrict investor choice and create duplicative and divergent regulation just as broker-dealers and their reps gear up to implement the Securities and Exchange Commission’s new best-interest sales rules.
Massachusetts Secretary of the Commonwealth William Galvin has heard a similar refrain from the broker-dealer industry before. He held a public hearing and comment period over the summer into what his office framed as a preliminary proposal. He decided to move forward despite criticism.
“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. “Investors must come first.”
A hearing on the proposed regulations, which were put out in preliminary form over the summer, will be announced “at a later date,” Galvin said. The industry hopes there will be a comment period as well.
Massachusett’s proposal will impose a uniform fiduciary conduct standard on broker-dealers, agents, investment advisors and investment advisor representatives providing financial advice to clients in the state.
As such, it requires that financial recommendations and advice 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,” Galvin said.
Dale Brown, president and CEO of FSI, a trade group that advocates on behalf of 100 independent financial services firms and their 160,000 registered reps, strongly disagrees with the implementation of a state rule in the face of the SEC’s new federal Reg BI standards.
“Based on the initial proposal, we have significant concerns about the impact that Massachusetts’ fiduciary rule will have on Main Street investors in the Commonwealth who are working to achieve their financial goals,” Brown said.
Brown argued that while the SEC's Reg BI establishes a national standard that enhances investor protection while preserving access to professional financial advice, Massachusetts’ proposal creates different and sometimes vague requirements from those established by the SEC’s rule.
As written, Massachusett’s rule makes it impossible to determine the "best available" investment option without the benefit of hindsight, Brown said.