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Massachusetts is considering its own investor protection rule. Brokerage and insurance groups oppose it

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Originally posted on CNBC by Lorie Konish.

Key Points:

  • Starting this year, broker-dealers will have to answer to a best-interest standard when serving individual investors.
  • But critics of the new regulation say it doesn’t go far enough to create one standard that both broker-dealers and investment advisors have to answer to.
  • Now, Massachusetts is looking to enforce a uniform fiduciary rule to put an end to the conflicted advice that individual investors sometimes receive. And other states could follow suit.

A new federal regulation aimed at providing increased investor protection isn’t slated to go into effect until later this year.

But a fight is already brewing in one state — Massachusetts — over the potential enforcement of a stronger rule.

The Securities and Exchange Commission’s new rule, called Regulation Best Interest, went into effect in September of last year. But firms have until June 30 of this year to comply with the rule.

As its name implies, Regulation Best Interest — “Reg BI,” for short — requires brokers to keep their clients’ best interests in mind when recommending securities. It also requires additional disclosures outlining the terms of the relationship be presented to clients.

But the SEC rule was met with critics, including William Galvin, Massachusetts secretary of the commonwealth, who said that Reg BI did not go far enough.

In an August 2018 letter to the SEC, Galvin said the best-interest standard “will foster confusion and will fail to protect vulnerable investors.”

Instead, Galvin said a uniform fiduciary rule, which would require both broker-dealers and investment advisors to put clients’ interests first, would be preferable. Currently, broker-dealers answer to what is called a “suitability rule.” That means their recommendations must be suitable for clients. Investment advisors, on the other hand, are already held to a fiduciary standard.

The SEC has the authorization to come up with a uniform fiduciary standard under a 2010 law called the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Read the rest of the article on CNBC.com.

Dan Moisand

 

Dan Moisand is a nationally recognized fiduciary fee-only financial planner, an Institute Real Fiduciary™ Advisor and Chair-elect of the CFP Board.

The Institute has enshrined the ‘Moisand Rule’ on fiduciary practices. It is basic and is more important today than ever: “You have to avoid conflicts. If I avoid a conflict, I don’t worry about it.”

Watch the video of Moisand speaking here.

Bob Veres

 

Bob Veres is a long term observer of financial planning. His Newsletter, “Inside information” Is a staple of leading planners. In the May edition he writes about fiduciary and the Institute.

"But a much bigger point is that the fiduciary standard—as Knut Rostad of the Institute for the Fiduciary Standard has pointed out—has been determined by the Supreme Court (1963 ruling) to be at the very heart of the Investment Advisers Act of 1940. It is the foundation of what it means to be an RIA registered with the SEC instead of a tipster or a tout."

- Bob Veres, Parting Thoughts ... The SEC's Own Compliance Culture