The Massachusetts Securities Division (the “Division”) of the Office of the Secretary of the Commonwealth filed a notice of a proposed regulation that would subject broker-dealers, agents, investment advisers and their investment adviser representatives (collectively, “Registrants”) to a “fiduciary duty”. This fiduciary duty would include both a duty of care and a duty of loyalty.
The duty of care would require Registrants to use the care, skill, prudence, and diligence that a person acting in a like capacity and familiar with such matters would use, taking into consideration all of the relevant facts and circumstances. It would require Registrants to “make reasonable inquiry” of:
- The risks, costs, and conflicts of interest related to all recommendations made and investment advice given;
- The customer’s or client’s investment objectives, risk tolerance, financial situation, and needs; and
- Other relevant information.
The duty of loyalty would require Registrants to:
- Disclose all material conflicts of interest;
- Make all reasonably practicable efforts to avoid conflicts of interest, eliminate conflicts that cannot be avoided, and mitigate conflicts that cannot be avoided or eliminated; and
- Make recommendations and provide investment advice without regard to the financial or any other interest of any party other than the customer or client.
According to the proposal, “disclosing or mitigating conflicts alone does not meet or demonstrate the duty of loyalty.” This statement is extremely ambiguous and would present difficulties for legal and compliance departments to know whether its disclosures or methods of mitigating conflicts are sufficient under the rule.
According to the Division’s website, dates for a hearing and comment period on the proposed rule will be announced at a later time. We will continue to monitor this proposal and provide updates on how it will impact our clients.