Like many of you, we have been closely following the Massachusetts Securities Division's ("MASD") rulemaking on a Proposed Fiduciary Conduct Standard for Broker-Dealers, Agents, Investment Advisers and Investment Adviser Representatives ("the Proposal"), dated December 13, 2019 (see December 5, 2019 Baker McKenzie Client Alert on the Proposal). The MASD's hearing on the Proposal occurred on January 7, 2020. We have listed some takeaways and updates below:
- Strong unified industry message to allow for Regulation Best Interest implementation to finish: While the proposal affects broker-dealers, state-registered investment advisers, and investment adviser representatives of both SEC-registered and state-registered firms, the focus of the testimony was on the impact on the broker-dealer industry.
- Industry advocacy has resulted in visibility of the Proposal to key stakeholders. We note that Massachusetts Governor Baker has filed a comment letter where he notes concern with reduced investor choice, harm to the broker-dealer business models, disruption of regulation of insurance products and discouragement of principal trading to the detriment of municipalities.
- Return of key MASD Alum. We understand that as of last Friday, at Secretary Galvin's request, former MASD Securities Director Bryan Lantagne is serving as a consultant to the Division with regard to the Proposal. Bryan had announced his retirement in late 2017, so is returning after about two years.
We have received some questions on our point of view on timing of the Proposal, particularly as firms continue working towards the Regulation Best Interest implementation deadline of June 30, 2020. Prior to the hearing, the general consensus on prognostication was that the Proposal would be finalized within 30 days of the hearing, with the hope that the effective and/or enforcement dates would be delayed. The hearing, and the compelling industry advocacy, may have somewhat decelerated the momentum, despite the public indications that Galvin's point of view on Reg BI's deficiencies remains unchanged (see Galvin quotes in this Boston Globe article). The addition of a long-time regulatory veteran to this effort may also delay the momentum as a new perspective can naturally delay an effort.