Posted on July 26, 2019

IRI Comment Letter on Proposed Massachusetts Fiduciary Regulation

Massachusetts Proposal Threatens to Reduce Consumer Access to Needed Financial Services

WASHINGTON, D.C. – A proposed state regulation governing professional financial advice to consumers is “misguided” and could make it more difficult for certain financial services firms to continue doing business in Massachusetts.

The Insured Retirement Institute (IRI), the leading trade association for the retirement income industry, told the Massachusetts Securities Division that it should delay action on its proposed rule until it can identify whether recently finalized, stringent new federal regulations leave any gaps in investor protections.

In comments filed with the Massachusetts Securities Division, IRI asserted that the recently finalized Regulation Best Interest announced in June by the federal Securities and Exchange Commission (SEC) will address the concerns underlying the state’s proposed regulation.  IRI also explained that, while the underlying goals are aligned, the Massachusetts proposal is fundamentally inconsistent and incompatible with the SEC rules.

“For the Division to create a separate regulatory structure that destroys the distinction between brokerage and advisory services is, at its best, misguided, and at worst, contrary to and incompatible with the Final SEC Rules,” wrote Jason Berkowitz, IRI chief legal and regulatory affairs officer, in comments to the proposed regulation.

“By rejecting the SEC’s approach, the Division threatens to create a regulatory labyrinth for broker dealers (BDs) offering services in Massachusetts. BDs will not only have to comply with the Final SEC Rules but also the Division’s more expansive and inconsistent rules,” Berkowitz added.  

IRI also cautioned against the creation of “a patchwork of inconsistent, conflicting or duplicative rules that would significantly impair investors’ access to valuable financial products and professional assistance about whether, when, and how to use those products.”

IRI’s comments, while urging a delay in consideration of the Massachusetts rule, also included guidance on what should be changed should regulators decide to proceed with the deeply flawed regulation.

“The proposed rule includes a number of open-ended, ill-defined and unworkable provisions would make it nearly impossible for broker-dealers to know with any degree of certainty that they are complying with the rule,” Berkowitz said.

IRI cited numerous examples in which broker dealers and companies would be disadvantaged by provisions lacking clarity or that create impossible standards to meet.

The proposal’s duty of loyalty provision creates “an impossible standard” for broker dealers and should be revised to follow the SEC’s approach, IRI said in its comments.  The group further noted that the Division’s formulation of the duty of loyalty is “among the most problematic and unworkable aspects of the proposal.”


IRI also noted that if the proposed rule moves forward it should clarify various definitions to ensure that investors could obtain brokerage and advisory services from their preferred financial professional, should not apply to variable annuities (which are already regulated by the Massachusetts insurance regulator), and should not apply to entities already subject to fiduciary obligations under current law.

IRI also warned that the Massachusetts rule is at risk of preemption due to its direct conflict with the SEC’s regulation best interest.

“We continue to believe Federal law preempts Massachusetts’s authority to adopt the Proposal,” Berkowitz said. “The Proposal would undermine the SEC’s attempt to create a federal standard for broker-dealers to follow when making personalized investment recommendations to retail customers. Allowing each state to promulgate separate and potentially inconsistent standards for broker-dealers would create a patchwork regulatory structure that would be detrimental to investors and to the industry.”


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