Since no one can predict investment performance with complete certainty, it's impossible to consistently identify the best available investment option, he said.

Who will determine what the "best" recommendation should have been given the information available at the time, or what standards that person or office would use to make that judgment? Brown has asked about the Massachusetts proposal.

Because it is vague, Brown said, the proposal does not provide clear standards for compliance. As a result, it leaves the door open for regulators to regulate by enforcement, after the fact, he added. 

The lack of clarity “will ultimately limit services and drive up costs for investors through increased confusion and higher compliance costs for financial advisors,” Brown said.

“Our members are diligently working toward compliance with Reg BI, and we strongly encourage Massachusetts to align its requirements with those of the SEC and other existing regulations. We stand ready to work with the Securities Division on a solution,” Brown added.

Attorneys who specialize in fiduciary law don’t necessarily disagree with Brown. In fact, states contemplating their own fiduciary rules “are on a collision course with where the federal law is going, which is going to set up some very difficult debates and probably some litigation,” Brad Campbell, a partner with Drinker Biddle, said in an earlier conference call.

Massachusetts’ proposal is similar to New Jersey’s in that they both call for a uniform fiduciary standard for advisors and brokers, said Campbell, a former head of the federal Labor Department’s Employee Benefits Security Administration.

“They would both put in place some rather troubling, in my view, restrictions that would have pretty negative effects on the availability of transacting compensation,” Campbell said.

Galvin’s proposal is the latest in regulatory pile-on from states determined to create a stronger fiduciary standard. In addition to regulatory proposals, seven states and the District of Columbia are suing the SEC to overturn the SEC’s Reg BI rule, which, like Galvin, they claim is too weak.

Attorneys general for New York, California, Connecticut, Delaware, Maine, New Mexico and Oregon filed the lawsuit in the U.S. District Court for the Southern District of New York in September. Plaintiffs claim that the SEC's rule would undermine consumer protections and that the agency exceeded its authority in promulgating the rule.

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