Heavy hitters from the brokerage and insurance industries descended on Boston this month to make the case against a proposal for a uniform fiduciary standard that would apply to advisors, brokers and their agents.
Executives from groups like the Insured Retirement Institute, the Financial Services Institute and SIFMA were having none of it, arguing at a hearing on the proposed regulation that the industry is already gearing up for compliance with the SEC's Regulation Best Interest, and that Massachusetts should apply the brakes to its fiduciary initiatives ahead of that rule’s implementation on June 30.
"The chief concern is that — and what we have urged — is for Massachusetts to defer any action on additional regulation until they can really evaluate the effectiveness of Reg BI," Dan Zielinski, a spokesman for the IRI, said in an interview.
"This is a substantial enhancement to consumer and investor protection over current law," he continued, warning of a wider fractured regulatory environment should more states pursue their own fiduciary rules.
"The unintended consequences are you're going to have the beginnings of this patchwork of inconsistent and sometimes conflicting regulation," Zielinski said.
Massachusetts is among a handful of states that have been working to develop new advice regulations — an effort that gathered steam after the Department of Labor's fiduciary rule was struck down in court in 2018 and it became clear that the SEC was not going to advance a uniform fiduciary rule of its own.
New Jersey, which has a fiduciary proposal very similar to the one under consideration in Massachusetts, held its hearing on the matter last July.
Nevada's legislature authorized its securities division to draft a fiduciary rule, but that process has stalled with a proposed rule — not a final version — amid speculation that the state is awaiting the rollout of the SEC’s rule later this year.
The Nevada Securities Division did not immediately respond to a request for comment.
New York has imposed a fiduciary standard on sales of insurance and annuities and the legislature has, in the past, considered a bill to extend fiduciary responsibilities to the brokerage sector. With legislative sessions in states around the country just beginning, more fiduciary proposals could emerge or be reintroduced.
Back in Massachusetts, the office of William Galvin, the Secretary of the Commonwealth who is backing the fiduciary proposal, was flooded with comment letters on the measure ahead of this week's hearing. Many of those submissions appeared to have come from templates containing identical language opposing the measure from
One of those included language supplied by the Massachusetts chapter of the National Association of Insurance and Financial Advisors, a spokesman confirms. In those
"Over time, the rule proposal will likely result in a shift from brokerage accounts to fee-based advisory accounts whose higher cost structure reflects ongoing monitoring expenses,"
"This limitation on investor choice could force many savers to decide between either advisory accounts that may not suit their needs or preferences or going at it alone without personal assistance from a licensed financial professional," Leveroni says.
Large firms like Morgan Stanley and UBS made similar warnings that the rule could compel them to curtail brokerage services in the state.
A spokeswoman for Galvin's office said that the Massachusetts Securities Division is reviewing the comments and testimony it received, but declined to comment further.
For in-state advisors already operating under a fiduciary standard, the rule won't amount to much of a change, according to Mike Vogelzang, chief investment strategist and principal at Captrust. Based in the firm's Boston office, Vogelzang welcomes the rule and is skeptical about the opposition's claim that it would pull the plug on brokerage services in the state.
"I'll be curious to see if some of the big wires actually decide not to do brokerage in Massachusetts," Vogelzang said in an interview. "That seems kind of strange that they would abandon a business because of compliance."
He is also dismissive of the suggestion that lower- and middle-income investors will be left without access to financial advice and services, citing the groundswell of robo advisors and offerings from firms like Vanguard and Robinhood catering to that segment of the market.
"I'm sorry, but it doesn't feel like there's a shortage of financial service providers in today's market," he says. "There just doesn't seem to be a shortage of advice for anyone if they go to look for it."
Echoes from past fights over advice standards are hard to miss in this latest clash. Industry groups raised similar concerns about the death of commissions when they were campaigning against the Department of Labor's fiduciary rule. Many of those same groups jumped on board the SEC's Regulation Best Interest, which consumer advocates panned as a gift to Wall Street that didn't include meaningful investor protections.
"Industry groups won the weak best-interest-in-name-only standard they were hoping for from the SEC and they are desperate to fend off stronger state rules," says Barbara Roper, director of investor protection at the Consumer Federation of America.
"That has nothing to do with their phony concerns about investor harm, and everything to do about protecting their ability to profit unfairly at vulnerable investors' expense," she says. "That's nothing new."
