Maryland lawmakers in the state senate and assembly have introduced a bill that would require broker-dealers, insurance agents and investment advisers to act in the best interest of their clients without regard to their own.
The fiduciary requirement is part of a much broader bill known as the Financial Consumer Protection Act of 2019, which paves the way for the Maryland Commissioner of Financial Regulation to craft state fiduciary regulations, much like Nevada’s legislation did.
“As was true of Nevada and will be true in New Jersey, the impact of the Maryland law will depend upon the manner in which it is implemented by regulations,” says Marcia Wagner, founder of the Wagner Law Group.
“What stands out [in the Maryland bill] is language is similar to Nevada,” says Andrew Remo, director of legislative affairs at the American Retirement Association. “It gives the Maryland consumer protection agency wide latitude to craft regulations.”
Remo is concerned that the Maryland bill, like the Nevada bill and subsequent proposed regulations, does not provide an exemption for ERISA plans, whose investment advisors are already required to be fiduciaries. “We would like to see that made clear in statute.”
Individual states are proposing their own fiduciary rules in the absence of federal regulations. A Labor Department fiduciary rule that would have applied to advisors and broker/dealers was quashed by a federal appeals court last year, a decision the current White House let stand without appeal.
The SEC is working on its own “best interest” proposal, which is less restrictive than a fiduciary rule but that is not expected to be finalized until later in the year at the earliest.
Securities industry trade groups prefer a national rule to any state regulation and a best interest regulation over a fiduciary requirement.
SIFMA President and CEO Kenneth Bentsen, said, “The promulgation of standard of conduct laws and rules at the state level, such as the one under consideration in Maryland, while well-intentioned will result in a patchwork of conflicting conduct standards, resulting in investor confusion, and ultimately less access to information and choice of products for investors.” SIFMA prefers that the SEC “promulgate a nationwide, heightened, best interest standard of conduct.”
So does the Financial Services Institute. Its president and CEO Dale Brown, says, “The SEC is the appropriate agency to develop a uniform standard of care, and we strongly encourage Maryland and all of the states to wait for the SEC to complete its rulemaking process.”
The American Council of Life Insurers, which operates in a state-regulated industry, opposes the Maryland rule on the same grounds that the FSI and SIFMA opposed the DOL fiduciary proposal previously, that the fiduciary rule would mean less choice for investors. Bruce Ferguson, its senior vice president for state relations, says a Maryland rule will cause many financial firms to “move to a fee-for-service-only model, eliminating commission-based services relied upon by small and moderate balance savers and typical buy-and-hold investors.”
No votes have been scheduled on the Maryland bill, which was first reported on by Investment News. It must first be approved by the relevant legislative committees before the full legislature can vote. Then presumably proposed rules, subject to public comment, would be issued.
Also pending is a fiduciary proposal from New Jersey, which is expected to be issued next month by the state’s Bureau of Securities. The bureau has the authority to impose a uniform fiduciary standard through regulation without legislative approval.