Regulation and Compliance > State Regulation

As Mass. Starts Enforcing Fiduciary Rule, Galvin Puts His Game Face On

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William Galvin, Massachusetts’ top securities regulator, stands ready to defend the state’s fiduciary rule as he begins to enforce the rule Tuesday.

“My office was the first and currently the only state to adopt a fiduciary rule for broker-dealers,” Galvin told ThinkAdvisor in a Monday email. “I intend to police this area to ensure that its important obligations are being met by industry. If challenged, my office is ready to defend this rule to the full extent of the law to protect Massachusetts’ investors against breaches of fiduciary duty and conflicts of interest.”

Galvin announced in late February that he had finalized the state’s fiduciary rule to impose “a true fiduciary conduct standard” in Massachusetts.

The new regulations took effect on March 6 but the enforcement date begins on Tuesday. The rule requires broker-dealers and their agents to provide investment advice and recommendations “without regard to the interests of anyone but the customer.”

George Michael Gerstein, partner at Stradley Ronon in Washington and co-chair of the law firm’s Fiduciary Governance Group, told ThinkAdvisor Monday that the standard of conduct for brokers and advisors “will continue to be flashpoint for federal and state regulators, even in the wake of Regulation Best Interest and the DOL’s 2020 [fiduciary] package.”

The “patchwork” of fiduciary rules — including those by the states — “is a compliance risk and should be evaluated carefully.”

Valerie Mirko, a partner in Baker McKenzie’s Financial Regulation and Enforcement Practice Group in Washington, told ThinkAdvisor in a previous interview that “one of the key questions under the Massachusetts rule is whether the fiduciary standard is episodic, meaning that it only applies at the time of the recommendation or whether there is an ongoing duty that extends beyond the time of the recommendation.”

The Labor Department’s fiduciary plan, meanwhile, “raises the question of whether a firm can be a fiduciary under ERISA and the tax code but still provide episodic advice under the Massachusetts fiduciary rule,” Mirko said.

“All eyes are on what happens” as the Massachusetts rule takes effect, she said. “I would expect other states to look toward how Massachusetts implementation and enforcement plays out.”

The state next in line to potentially approve a rule is New Jersey, but that rulemaking is paused due to COVID-19.

— Check out Scottrade to Pay $250K Fine to Massachusetts Over Sales Contests on ThinkAdvisor.