Ready to Comply With the Massachusetts Fiduciary Rule?

Back in early December, Massachusetts Secretary of the Commonwealth William Galvin signed off on the final version of a proposed rule that would impose a fiduciary conduct standard for broker/dealers, their agents, investment advisers and their representatives working in the commonwealth.

Today, Galvin formally filed the regulations, meaning the new uniform fiduciary standard will go into effect on March 6—just two weeks from now.

“Since the U.S. Securities and Exchange Commission [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 issued with the filing announcement. “Enacting this rule will provide stronger protections for Massachusetts investors by imposing a heightened duty of care and loyalty on broker/dealers and agents.”

Supporters of the Massachusetts rule say the state-based regulations will be far more effective in tamping down on financial services industry conflicts of interest compared with the national Regulation Best Interest (Reg BI) currently being implemented by the SEC. Their arguments, shared by supporters of fiduciary rules in other states such as New Jersey and New York, are based on the fact that Reg BI focuses on the disclosure of potential conflicts by brokers. Advisers, under both the SEC rule and the state-based proposals, are required to act in a genuine fiduciary capacity.

Various industry groups say the states are overstepping their authority and will cause more harm than good for consumers by implementing a uniform fiduciary standard applying to brokers and advisers. Skeptical groups include the Financial Services Institute (FSI) and the Insured Retirement Institute (IRI), which argue that investor choice will be harmed by the states’ uniform approach.

One provision included in the final Massachusetts regulations that agrees with Reg BI is a prohibition on sales contests. But the Massachusetts sales contest prohibition, in banning all such contests, goes beyond the SEC’s regulations, which bans only those contests which are product-specific or limited to particular securities in particular time periods, Galvin says. He adds that changes made to the final regulations “reflect the feedback provided by members of the public and industry during the comment periods.” The text of the final regulations may be found on Galvin’s website: www.sec.state.ma.us/sct.

Now that the Massachusetts fiduciary standard is set to become law, expert Employee Retirement Income Security Act (ERISA) attorneys suggest this broad fiduciary battle will soon be tried in the federal courts. Lawsuits are already pending seeking to declare the Massachusetts, New Jersey and New York fiduciary rules as being “preempted by ERISA.” In the meantime, there is some evidence emerging to show that some insurance firms are finding it difficult to comply with New York’s new standards, in particular.