Maryland

Why states have opted to “Go Your Own Way” on fiduciary standards re. broker-dealers and investment advisers

Over the past 2 years, the states have taken disparate approaches to filling what they perceive as a regulatory void when the DOL Fiduciary Rule was struck down by a federal court. At the outset, most states, with the exception of Nevada, took a disclosure-based approach (most notably, NY and NJ), and legislation was the preferred avenue. Now, the trend is toward heightening the standard of care (disclosure appears to be viewed skeptically) through regulation (executive/governor’s branch). Though it varies by state, there at times can be incongruity of approach taken within a state. For example, the New Jersey legislation favored disclosure, whereas Governor Murphy preferred a new standard of care. Though the New Jersey legislation is unlikely to be reintroduced next year, it highlights a risk for market participants when there is inconsistency intrastate and interstate. We are expecting to see draft bills over the coming months for the next session in a small handful of states, but will also keep a (very) close eye on if and when either or both of New Jersey and Massachusetts decide to move forward with their fiduciary duty regulations applicable to broker-dealers and investment advisers. Nevada is also likely to be moving forward with finalization on its proposed fiduciary implementing regulation.

How the states are trying to revive the DOL fiduciary rule

Wealth Management Magazine just ran a story on how the states are attempting to revive the DOL Fiduciary Rule in their own image. As part of my interview, I say: “To me, there’s no question that the Department of Labor fiduciary rule is a bit of the ideal paradigm in terms of governance (for these states).” This is true, but the DOL rule appears to also be a litmus test for some of the states in evaluating Regulation Best Interest (Reg BI) and their own rules. As some states try to channel the DOL Fiduciary Rule, Jay Clayton and Alex Acosta are, by all, accounts, coordinating on a June unveiling of the SEC Standards of Conduct package with a  proposed DOL exemption and some guidance (i.e., not a new rule on when one becomes an investment advice fiduciary under section 3(21) of ERISA) to follow.