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Galvin Goes After Reg BI With New Fiduciary Standard

Fiduciary Rules and Practices

Contending that the SEC’s new Regulation Best Interest falls short, the Massachusetts’ Secretary of the Commonwealth plans to enter the fiduciary rulemaking fray.

William Galvin announced June 14 that his Securities Division is seeking preliminary comments on a proposed regulation that would apply a fiduciary conduct standard on broker-dealers, agents, investment advisers, and investment adviser representatives when dealing with their customers and clients.

Galvin had previously stated that the SEC’s initial Reg BI rulemaking had a “weak and unclear standard” which, unless modified, would force the Bay State to adopt its own rules to protect investors and require broker-dealers to provide non-conflicted advice in the best interest of their clients.

In soliciting comments on his new proposal, Galvin clearly feels that the new effort by the SEC fails to pass muster. Should there be any remaining doubt, along with his request for comments, Galvin states that, “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.” “My Office has seen firsthand the serious financial harm that investors and savers have suffered as a result of conflicted financial advice. Investors must come first,” he further stated. 

Galvin’s announcement says this new conduct standard would be based on the common law fiduciary duties of care and loyalty, requiring that recommendations and advice be made in the best interest of customers and clients without regard to the interests of the broker-dealer or advisory firm or its personnel.

It further contends that the proposed conduct standard would allow for the payment of transaction-based remuneration if the remuneration is reasonable, is the best of the reasonably available remuneration options and the care obligation is satisfied.

The announcement makes no mention of whether the proposal would apply to ERISA plan fiduciaries, but it notes that the standard would apply to recommendations to open IRA roll-over accounts, as well as recommendations to open accounts involving asset-based or transaction-based remuneration – territory addressed in the SEC’s recent Reg BI.

The preliminary comment period will remain open until Friday, July 26, and comments may be submitted at the following link: