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February 11, 2019 at 02:52 PM
Maryland became the latest state to enter the fiduciary fray by proposing last week a “sweeping” bill that, if passed as written, would not only have “a profound impact on the financial services and insurance industries in the state,” but would also put advisors in the state under more stringent fiduciary requirements, according to Stradley Ronon attorney William Mandia.
In the law firm’s Fiduciary Governance blog on Monday, Mandia writes that Maryland’s Financial Consumer Protection Act of 2019, S.B. 786, released Feb. 4, includes a section that would make broker-dealers, broker-dealer agents, and insurance producers fiduciaries, as well as incorporates a suggestion by the Maryland Financial Consumer Protection Commission to beef up the state’s advisor fiduciary rules.
The commission noted in a January report that Maryland’s regulation of investment advisors “was, in its view, less robust than federal law,” Mandia told ThinkAdvisor.
The commission stated in its report that “these Maryland standards taken together, though, may provide less investor protection than the standard set forth in Dodd-Frank Section 913(g) and used by DOL in its rule which reads: ‘shall be to act in the best interest of the customer without regard to the financial or other interest of the broker, dealer or investment advisor providing the advice,’” Mandia said.
Maryland’s proposed bill contains a provision intended to address the advisor fiduciary issue by “essentially parroting” the commission’s language, Mandia continued, by requiring a covered person “to act in the best interests of the customer without regard to the financial or other interest of the person or firm providing the advice.”
Maryland’s 2019 proposal differs from the state’s 2018 bill, which stated that “a person subject to this section is a fiduciary and has a duty to act primarily for the benefit of its clients,” Mandia points out.
Maryland’s 2019 plan “is very broad as applied to insurance producers, making them fiduciaries in the context of a wide range of transactions,” Mandia said, and will likely meet “fierce opposition” from industry groups and others.
It’s hard to predict, however, if Maryland’s bill will succeed, Mandia conceded.
“Just last year, Maryland’s General Assembly declined to pass a similar provision that would have made broker-dealers and insurance producers fiduciaries. The current proposed legislation, however, comes against a different backdrop,” as the Maryland Financial Consumer Protection Commission issued its January report recommending changes to Maryland law.
After declining to pass the legislation proposed in 2018, Mandia explained, “the General Assembly directed the commission to study the outcome of federal efforts on fiduciary duty and determine whether Maryland should enact its own fiduciary law.”
