William Galvin, Massachusetts' top securities regulator. William Galvin, Massachusetts’ top securities regulator.

William Galvin, Massachusetts’ top securities regulator, said Friday that he has finalized the state’s fiduciary rule to impose “a true fiduciary conduct standard” in Massachusetts.

The new regulations, which take effect March 6, require broker-dealers and their agents to provide investment advice and recommendations “without regard to the interests of anyone but the customer.” A prominent consumer advocate, however, said the final rule had been weakened from the original version.

Enforcement of the regulations will start on Sept. 1.

“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 said Friday 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 added that the Massachusetts standard will protect retirees in the state and “their hard-earned retirement savings from conflicted investment advice, which has been shown to cost investors billions of dollars each year.”

The new rule also prohibits sales contests, which Galvin’s office has identified “as a repeated cause of harm to investors.”

The rule goes beyond the SEC’s Regulation Best Interest, which Galvin said “bans only those contests which are product-specific or limited to particular securities in particular time periods.”

George Michael Gerstein, co-chair of the Fiduciary Governance Group at Stradley Ronon in Washington, told ThinkAdvisor’s Human Capital podcast on Tuesday that Masschusetts would likely be the first state to finalize a fiduciary rule. “I’m assuming there will be litigation brought against [the Massachusetts rule] on pre-emption and other grounds,” Gerstein said. Other states “will wait to see how the litigation plays out” before moving ahead.

Ken Bentsen, president and CEO of the Securities Industry and Financial Markets Association, said in a Friday statement that SIFMA looks 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.”

Barbara Roper, director of investor protection for the Consumer Federation of America, told ThinkAdvisor on Friday that the consumer group is “very disappointed by the extent to which they have weakened the proposal.”

The biggest change, she said, “is the extent to which they [Massachusetts] walked back the obligation to provide ongoing monitoring of accounts. Under the proposal, that obligation would have applied whenever there is ongoing compensation or where the investor has a reasonable expectation, based on how the broker holds out and markets their services, that they will be providing ongoing services. Both were removed.”

The language on ongoing monitoring, she continued, “now closely tracks Reg BI, which we had strongly opposed because it is weaker than court interpretations under common law. By eliminating the language on ongoing compensation, they weakened the incentive for firms to move to clean shares.”

The Massachusetts proposal also covered recommendations of annuities and other insurance investments. “The final does not,” Roper said. “So brokers will be fiduciaries when recommending mutual funds or ETFs but not when recommending annuities, where the protections are even more needed.”

Added Roper: “What’s left is a modest improvement on Reg BI but not a model that other states should follow.”

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