Compliance & Regulation

FSI Responds to Developments on Maryland State Fiduciary Bills

Dale Brown: A state solution will only lead to more confusion and hurdles

WASHINGTON, D.C. – The Maryland Senate Finance Committee defeated S.B. 786 that would impose a state-specific fiduciary standard on investment advice. Below is a comment from FSI President & CEO Dale Brown responding to this development:

While we support the Maryland General Assembly’s goal of investor protection, a state solution will only lead to more confusion and hurdles, ultimately hindering Marylanders’ access to affordable, professional financial advice. FSI has long supported a federal uniform standard of care for all investment advice, and we believe the SEC is the appropriate authority to develop such a standard. State-specific standards will lead to a patchwork of varying requirements across the country, confusing investors and creating uncertainty for advisors who are trying to best serve their clients while also obeying state and federal regulations. Varying standards would also drive up compliance costs for financial advisors, ultimately limiting services or increasing costs for Main Street investors. Like Maryland, we strongly encourage all states to wait for the SEC to finalize Regulation Best Interest.”

Last month, FSI President & CEO, Dale Brown, testified before the Maryland Senate Finance Committee and House Economic Matters Committee about the state’s proposed fiduciary rule regarding investment advice and its impact on Main Street investors. Brown stressed that the proposal will drive up compliance costs for advisors while limiting services and increasing costs for investors. He urged Maryland to wait until the SEC’s Regulation BI is finalized as the SEC is the appropriate agency to address this issue.

Excerpts from Mr. Brown’s testimony to the Maryland Senate Finance Committee

By way of background, FSI is an advocacy association comprised of members from the independent financial services industry. FSI consists of independent financial advisor members who are self-employed independent contractors, rather than employees, of our independent firm members. This means they are small-business owners with strong ties to their communities. They hire and pay their own employees, pay all of their own overhead costs, pay self-employment taxes,
and embody the entrepreneurial spirit.

To be clear, FSI believes that all financial advisors, regardless of business model, should be obligated to act in their clients’ best interest. Therefore, we support imposing an explicit best interest standard on broker-dealers, investment advisers, and their representatives. Nonetheless, FSI also believes that investors will only benefit from that heightened protection if the standard is effectively implemented, administered, and enforced. In this case, “effective” means a standard
implemented, administered, and enforced on a federal level by the U.S. Securities and Exchange Commission (SEC).

the proposal will drive up compliance costs for advisors while limiting services and increasing costs for investors...

Moreover, FSI contends that uniformity is best achieved by imposing equivalent standards on investment advisers and broker-dealers rather than imposing identical standards that fail to account for the unique nature of those relationships and, similarly, fail to account for the different regulatory frameworks governing those financial professionals. Most importantly, the Maryland Fiduciary Provision would likely cause Marylanders to lose access to affordable professional financial services and advice because it would increase cost and complexity for financial advisors and clients. Finally, the provision may be preempted by federal law. If the provision is not preempted by federal law, effective enforcement would be impossible.

Maryland investors are currently protected and have recourse against financial advisors who do not act in their best interest. Investment advisers and dual registrants are already subject to a fiduciary duty under Section 206 of the Advisers Act, as interpreted by the U.S. Supreme Court in SEC v. Capital Gains Research Bureau. Similarly, independent broker-dealer firms are required to comply with the Financial Industry Regulatory Authority, Inc.’s (FINRA) suitability rule, which has
been interpreted to require broker-dealers to act in their customers’ best interest.10 In fact, prior FINRA guidance provided a host of examples where the SEC and FINRA found that brokerdealers who place their interests ahead of their customers’ had violated FINRA’s suitability rule.

Read the entire testimony here.

FSI also hosted a Maryland State Capitol Day for members to meet with Maryland legislators and discuss the negative effects a state fiduciary duty would have on their businesses and clients. FSI also co-chaired the Maryland Consumers Best Interest Coalition which lead and organized the industry’s opposition to the bill.

The companion bill in the Maryland House Economic Matters Committee, H.B. 1127, has not seen any movement and is expected to die when the Maryland General Assembly adjourns on Monday, April 8.

 

 

 

About the Financial Services Institute (FSI): The Financial Services Institute (FSI) is the only organization advocating solely on behalf of independent financial advisors and independent financial services firms. Since 2004, through advocacy, education and public awareness, FSI has successfully promoted a more responsible regulatory environment for more than 100 independent financial services firm members and their 160,000+ affiliated financial advisors – which comprise over 60% of all producing registered representatives. We effect change through involvement in FINRA governance as well as constructive engagement in the regulatory and legislative processes, working to create a healthier regulatory environment for our members so they can provide affordable, objective advice to hard-working Main Street Americans. For more information, please visit financialservices.org.