Massachusetts “Fiduciary Regulation” Starts March 6

Secretary William Galvin Taunts SEC With New Legislation

Updated February 24, 2020

Massachusetts landed one of the first blows in the “fiduciary conduct standard” battle, passing legislation on February 21 that will require BDs in the state to provide investment advice and recommendations without regard to the interest of anyone but the customer.

The new regulations go into effect on March 6, according to a report in Financial Advisor IQ.

The Massachusetts Fiduciary Conduct Standard Regulations can be found on the website for the Secretary of the Commonwealth of Massachusetts.

Raise the Cost of Advice?

The American Securities Association (ASA) calls it “an unfortunate development” for the citizens of Massachusetts. The ASA suggests that it will be harder for Massachusetts residents to get financial advice. Other industry watchers suggest the new rule will likely raise the cost of financial advice for Massachusetts’ residents.

On the other hand, the Consumer Federation of America said it was “disappointed” in the Massachusetts legislation, implying that the rule does not go far enough and that other states should not follow the Massachusetts model. 

SIFMA’s Perspective

“We look 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,” SIFMA CEO Kenneth E. Bentsen Jr. said in a statement, “or whether it may conflict in ways — whether intended or unintended — that would impede our members from best serving their retail clients.”

SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. 

 

It’s “Go Time” for Most B/Ds and Investment Advisors with Reg BI

Updated February 20, 2020

Broker-dealers and investment advisors must comply with the SEC’s Regulation Best Interest (Reg BI) by June 30. Here’s a quick overview of how the FMG Suite Family of Companies is preparing to help firms abide by portions of the new rule.

At the highest level, Reg BI establishes a “best interest” standard of conduct when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer, including recommendations of types of accounts.

“When making such a recommendation to a retail customer, you must act in the best interest of the retail customer at the time the recommendation is made, without placing your financial or other interest ahead of the retail customer’s interests,” according to the SEC.

FMG Suite’s New Language

The FMG Suite Family of Companies will be widely adopting the phrase “financial professional” to help firms address a portion of Reg BI. Throughout the month of March 2020, our editors will be removing all references to “financial advisor” and replacing it with “financial professional” in our content.

We’ve received this feedback from a number of marketing and compliance departments, and we greatly appreciated the input.

An “Ear to the Ground”

FMG Suite is also attending several industry events to stay current with how firms are interpreting Regulation Best Interest.

For example, late last year, Investment News held a webinar with three industry experts who were closely monitoring the new legislation.

Two highlights of the webinar:

  • Most BDs were performing a “gap analysis.” BDs were in the process of assessing internal procedures, specifically comp structures and training plans for reps. Many small and mid-sized BDs were outsourcing the project. The SEC requires that firms “establish, maintain and enforce written policies and procedures reasonably designed to achieve compliance with Regulation Best Interest.”
  • NSMIA sets the rules for BDs and investment advisors. The National Securities Market Improvements Act was passed in 1996. In 2018, after the Department of Labor’s Fiduciary Rule was overturned by the 5th Circuit, several states have looked to advance their own legislation. Through NSMIA, federal regulators are pushing for Reg BI.

The FMG Suite Family of companies will add updates to this blog as new information becomes available.

We Welcome Your Input

Please contact Mike Woods, at mike.woods@fmgsuite.com or (858) 251-2444, if you would like more information. Mike will coordinate meetings with the various FMG Suite teams that are working on the project.