Unlike the IAA, however, Thompson thinks that Massachusetts is being careful to avoid triggering the NSMIA preemption that precludes states from regulating SEC-registered advisors.
“Massachusetts appears to be trying to carefully draft its proposal to contain as much of the old Department of Labor fiduciary rule as possible while avoiding a preemption challenge that states cannot regulate brokerage or advisory firms that are subject to SEC oversight,” Thompson said.
“In other words, if challenged in court, Massachusetts may try to defend its action as a principles-based approach to setting market conduct standards and not usurping SEC regulation,” Thompson said.
By integrating a clear fiduciary standard into a state’s existing rule governing dishonest and unethical business practices it’s possible the state may avoid any preemption claims, he said. If a suit is filed and Massachusetts prevails in court, other states may adopt the approach, he said, adding that New Jersey is using a similar strategy.
Nevada is taking a completely separate approach with a legislative mandate to establish a fiduciary standard, he added.
“So the debate over the appropriate market conduct standard for brokers looks like it will continue into the foreseeable future, and Massachusetts’ action may well serve as a key bellwether to watch once it becomes law,” Thompson said.
Meanwhile, some proponents of tougher fiduciary rules are watching the ongoing legal and regulatory battles with glee. “Bravo! Secretary Galvin is leading a disruption of the brokerage industry’s sales standard by championing a real fiduciary standard that meets investors reasonable expectations,” said Knut Rostad, president of the Institute for the Fiduciary Standard, which advocates for a uniform standard for brokers and advisors.