Massachusetts Secretary of the Commonwealth William Galvin has filed regulations that will impose a “true fiduciary conduct standard” in the state, according to an announcement from his office.
The new regulations, which will go into effect on March 6, will require broker-dealers and broker-dealer agents registered or required to be registered in Massachusetts to provide investment advice and recommendations without regard to the interests of anyone but the customer.
The fiduciary rule will be enforced starting September 1, according to the text of the final regulations.
“Since the SEC has failed to enact a meaningful conduct rule to protect working families from abusive practices in the brokerage industry, it has been left to my office to apply a real fiduciary standard on broker-dealers and agents in Massachusetts,” Galvin says in a statement. “Enacting this rule will provide stronger protections for Massachusetts investors by imposing a heightened duty of care and loyalty on broker-dealers and agents.”
Galvin adds: “This standard will protect Massachusetts retirees and their hard-earned retirement savings from conflicted investment advice, which has been shown to cost investors billions of dollars each year.”
Among the provisions included in the new regulations is a prohibition on all sales contests, which Galvin’s office has identified as a repeated cause of harm to investors.
The rule goes beyond the SEC’s regulations, which bans only those contests which are product-specific or limited to particular securities in particular time periods.
A version of the new regulations was originally made public by Galvin’s Securities Division in July of 2019, when the Division held a preliminary comment period on draft regulations. A formal comment period and public hearing was held on amended regulations in January.
Changes made to the final regulations reflect the feedback provided by members of the public and industry during the comment periods, according to the press release.
The American Securities Association — a lobby group for middle-market financial services firms including broker-dealers and investment advisory firms — is disappointed with this action from Massachusetts.
“This is an unfortunate development for the citizens of Massachusetts. It appears the Secretary ignored the views of the public and adopted a rule that will harm investor choice and make it harder for the good people of Massachusetts to obtain financial advice,” says ASA CEO Chris Iacovella. “The Secretary and his allies politicized this issue from the beginning and adopting a final rule before the SEC national standard becomes effective further illustrates this point.”
Even consumer advocate group the Consumer Federation of America is frustrated with the development, but for different reasons.
“We’re frankly disappointed that Massachusetts has so significantly weakened their proposal,” says CFA director of investor protection Barbara Roper. “While this is a modest improvement over [the SEC’s Regulation Best Interest], it does not do enough to address major weaknesses in that standard. It is not a model that other states should follow.”
Meanwhile, broker-dealer lobby group Sifma says it is evaluating the new regulations.
“We look forward to reviewing the rule with particular attention on whether it is consistent with existing federal fiduciary and best interest standards to which our members are subject, or whether it may conflict in ways — whether intended or unintended — that would impede our members from best serving their retail clients,” says Sifma president and CEO Kenneth Bentsen, Jr.
The Insured Retirement Institute is also sifting through the final regulations.
“IRI is reviewing this regulation carefully with its members to ascertain its full meaning and potential effects,” says IRI chief legal and regulatory affairs officer Jason Berkowitz. “Broadly, we remain concerned that the Massachusetts regulation will limit consumers and investors of their choice of investment professional and of products that are important to retirement planning and financial well-being.”
IRI still believes states should wait for Reg BI to be implemented on June 30, allowing it time to work and then evaluate its effectiveness before new regulations are considered.
Click here for the of the final regulations.
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