IPA Submits Comment Letter Regarding Proposed Massachusetts Fiduciary Standard
Dear Members and Friends,
The Institute for Portfolio Alternatives (IPA) today submitted a comment letter in response to the Massachusetts Securities Division’s (the Division) proposed regulations, released December 13, 2019, regarding fiduciary conduct standards for broker-dealers, agents, investment advisers and investment adviser representatives. The IPA also joined an industry coalition comment letter.
The IPA letter highlighted several concerns with the re-proposed Massachusetts regulation and urged the Division to make further adjustments before proposing any final regulation.
- Delay Implementation. The Division should delay implementation until after the June 30, 2020 Regulation Best Interest/Form CRS compliance date, recognizing that advisors face significant costs and practical challenges with a new federal standard, forthcoming FINRA rule changes and related state securities law updates.
- Impact on Massachusetts Investors. The Division should consider the increased costs of their proposal on the availability and cost of financial advice for Massachusetts investors, particularly those with small dollar accounts or “buy-and-hold” strategies. A patchwork of state regulation creates confusion and decreases the availability of services for retail investors.
- Clarity on Duty of Loyalty. The Division should provide greater clarity in how advisors can discharge their requirements to avoid, eliminate and/or mitigate conflicts of interest under its duty of loyalty. These provisions are unclear and in internal conflict with each other, creating ambiguity in meeting these obligations.
- Ongoing Monitoring. The Division should limit the overly broad application of ongoing monitoring and a continuing duty only where an investment advisory relationship is established. The proposal’s requirement to provide ongoing monitoring where an advisor receives “ongoing compensation”, uses common titles, or has a “reasonable expectation” of monitoring is contrary to federal law, and would subject broker-dealers to investment adviser registration.
- Title Usage. The Division should only limit use of titles such as “adviser” or “advisor” that are closely aligned to the statutory term “investment adviser” (consistent with Regulation Best Interest), rather than the generic titles of “consultant” or “manager.” Any such changes should only apply prospectively and not retroactively.
- Without Regard To. The Division should remove the phrase “without regard to” in the duty of loyalty and replace it with the requirement to put the client’s interest first, consistent with Regulation Best Interest. Servicing a customer without regard to one’s financial interest is antithetical to any fee-for-service based business.
- Legal Residents/Implementation. The Division should limit application of the regulation only to retail customers that are legal resident of or reside in Massachusetts and provide for an 18-month implementation period.
- Federal Preemption. The proposal creates new books and records requirements, and runs contrary to federal preemption of state law pursuant to NSMIA and ERISA.
The IPA is committed to creating a favorable regulatory environment for the portfolio diversifying investments (PDI) industry at both the federal and state level, and we will continue to advocate for our members on conflicting state fiduciary regulations.
SVP, Government Affairs and General Counsel
Institute for Portfolio Alternatives