A proposed Massachusetts regulation would impose a uniform fiduciary conduct standard on broker-dealers, agents, investment advisors and investment advisor representatives when dealing with their customers and clients in the state.

The proposal will require 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," Massachusetts Secretary of State William F. Galvin said in announcing the proposal. "The conduct standard is based on the common law fiduciary duties of care and loyalty."

Galvin said the state proposal grew out of the failure of the U.S. Securities and Exchange Commission to adequately put forth a conduct standard for all advisors.

“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 in a press release.

Investment Adviser Association (IAA) General Counsel Gail Bernstein told Financial Advisor she is “pretty optimistic that whatever proposal we see will not apply to federal advisors or we would be very disappointed."

Bernstein added that she is optimistic Massachusetts will honor a "carveout” in the National Securities Markets Improvement Act (NSMIA) that precludes states from creating substantial regulation.

The proposal adds Massachusetts to a group of states that have recently moved to enact a stronger fiduciary standard for financial professionals, brokers and advisor reps, in a backlash to the SEC's controversial best-interest rule.

Seven states and the District of Columbia are suing the SEC to overturn its Reg BI rule, which they and other critics 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.

“My takeaway from the Massachusetts proposal is this is another sign the states are testing the waters to see if a state fiduciary standard will pass muster in a court test,” said Duane Thompson, senior policy analyst at Fi360, a financial industry consulting firm.

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