Those both for and against Maryland legislation that would put brokers and insurance agents under a state fidicuary rule testified before state legislators on Wednesday.

Securities industry representatives told Maryland lawmakers that they should let the SEC finalize its “best-interest’ advisor standard before considering a law that would blanket registered reps and hybrid advisors in the state with a fiduciary standard.

Those in support of the proposal said state protections are needed in case the SEC regulations fall short.

Maryland is among several states pursuing legislation that would apply such a fiduciary standard to all advisors and brokers. Legislative committees heard from those both for and against the proposal.

Dale Brown, president and CEO of the Financial Services Institute (FSI), which represents independent broker-dealers, told lawmakers at one legislative commitee meeting that he supports a best-interest standard, but that it should be implemented nationally and uniformly by the SEC.  SEC officials have said they expect to finalize their “best interest” standard by end of summer.

Brown also predicted that the state’s provision would impact Maryland consumers “by significantly increasing costs that would eventually be passed on to investors.”

FSI represents 635 Maryland financial advisors and two broker-dealers who support 9,413 jobs and generate nearly $1 billion in economic output in the state annually, the group said. FSI successfully convinced Maryland lawmakers to withdraw their fiduciary bill last year.

“A state-specific standard would also likely lead some firms to stop offering commission-based financial planning services," Brown told lawmakers.

Legislators also heard from those in support of the legislation.

Knut Rostad, founder of the Institute for the Fiduciary Standard, directed Maryland lawmakers to his group’s website, where real investor “Gail from Maryland” tells her story of being ripped off by an abusive broker.

“Watch our video. Listen to Gail. Keep her picture and story in mind as you proceed on a fiduciary rule,” said Rostad. “Maryland must enact a fiduciary rule because the SEC, if it proceeds as planned, is virtually certain to fall very short of a real fiduciary standard.”

The potential costs that the legislation could create for advisors was one of the key issues discussed.

Dually registered advisor and FSI member Bruce Robson, a partner with Comprehensive Financial Solutions (CFS) in Salisbury, Md., told Financial Advisor magazine that his smallest clients would likely be hurt by a state fiduciary rule that would force him to use only advisory accounts.

"It would be harder to serve those clients because of cost," he said. “Our choices would be to stop working with smaller clients or to increase our fees to an unreasonable level, which would not just be a regulatory red flag, but put us out of compliance."

Advisory accounts cost investors in the neighborhood of 0.75 percent to 1.0 percent of assets each year, while brokerage accounts can range from 3 percent to 5 percent in a one-time, upfront commission, which is amortized over the life of the account.

“The differences are significant and a good advisor would completely disclose them," Robson said. "But it is a one-time charge and we hope accounts will grow into advisory accounts over time."

Lisa Bleier, managing director and associate general counsel of federal government relations for SIFMA, which represents the securities industry, said the group “strongly supports SEC efforts to establish a best-interest standard for broker-dealers and has serious concerns about any state-specific duties.”

Not all investors would be well-served by advisory accounts, she said. “The reason we raise the investor choice matter is that if Maryland were to impose certain requirements on brokerage relationships that are now impossible to implement in a brokerage account, then more of the business would move towards being advisory,” Bleier said.

Gail Bernstein, general counsel of the Investment Advisers Association (IAA), said the group isn’t asking Maryland to wait on SEC fiduciary regulation, but told lawmakers that it is critical that they exempt SEC-regulated advisors from their regulations so they don’t create an “additional layer of substantive regulation.”

Federal law prohibits states from regulating advisors that are under the jurisdiction of the SEC, she added.

“We have a strong interest in ensuring that the Maryland legislature maintains the division of regulatory oversight of investment advisors between the SEC and the states," she said.

Bernstein also noted that SEC-regulated advisors are already fiduciaries to their clients under the Advisers Act of 1940.

IAA represents 650 SEC-registered RIAs who in total manage $25 trillion in assets.