Massachusetts has appropriately excluded ERISA plan fiduciaries from the application of its proposed new fiduciary standards, according to comments by the American Retirement Association.
In a letter to the Office of the Secretary of the Commonwealth, the ARA – parent organization of the National Association of Plan Advisors – notes that it supports the proposed regulation’s inapplicability to fiduciaries to ERISA plans, their participants and beneficiaries, and recommends that this exclusion be retained when the proposed regulation is finalized.
The ARA explains that it supports the principles of the proposed regulation, including that investors are best served when the interests of advisers and investors are aligned, but notes that ERISA already provides a uniform body of benefits law and regulations that protect participants and beneficiaries from impermissible conflicts of interest. “ARA believes that fiduciary rules of the laws of individual states, without exempting ERISA-covered plans, will lead to duplicative regulation, investor confusion, legal conflicts and compliance challenges while not providing additional investor protection benefits,” the letter advises.
In addition, the ARA emphasizes that having such a standard be a function of state law is problematic for ERISA-covered retirement plans and the service providers to those plans due to the potential for conflicting fiduciary standards between state law standards and fiduciary standards already in effect under ERISA. “In enacting ERISA, Congress intended to provide a uniform set of national rules that Massachusetts should respect in promulgating regulations applicable to Investment Professionals,” the ARA advises.
Massachusetts’ Secretary of the Commonwealth William Galvin released the proposed regulation on June 14 to apply a fiduciary conduct standard on broker-dealers, agents, investment advisers, and investment adviser representatives when dealing with their customers and clients.
The proposal comes following the SEC’s finalization of its Regulation Best Interest, with which Galvin had expressed his displeasure. “We are proposing this standard, because the SEC has failed to provide investors with the protections they need against conflicts of interest in the financial industry, with its recent ‘Regulation Best Interest’ rule,” Galvin stated.
Other organizations, such as the Securities Industry and Financial Markets Association (SIFMA), have encouraged the Bay State to allow the SEC’s Regulation Best Interest to be fully implemented before moving forward with a state-specific fiduciary rule. SIFMA contends that “once Reg BI is fully operational and the SEC, FINRA and state regulators begin examining for compliance, the Division will find that Massachusetts investors are receiving substantial additional protections while continuing to have access to the numerous choices and opportunities they have today.”
The comment period for the proposed regulations ended July 26, and more than 50 additional comment letters were submitted. To access the full catalogue of comment letters, click here. Notwithstanding the path that Massachusetts ultimately chooses, concerns remain regarding the status of other state initiatives, notably Nevada.
