Massachusetts Sues to Enforce Compliance with Fiduciary Rule

The Massachusetts Securities Division has commenced administrative proceedings against a large broker-dealer because it ran sales contests that violated its own policies adopted to comply with the Department of Labor’s fiduciary rule.  The DoL rule, which became effective in June 2017, requires firms to follow an “impartial conduct standard” including acting in the best interest of customers, charging reasonable compensation, and ensuring full disclosure.  In response to the rule, the BD adopted compliance policies prohibiting conflicts of interest when dealing with retirement accounts.  Following adoption of the new policies, the firm launched sales contests, which the MSD alleges involved misrepresentations and conflicts of interest.  The MSD alleges that the firm violated Massachusetts ethical conduct standards by failing to abide by its own policies and the DoL rule.

OUR TAKE: Even though he DoL won’t enforce the fiduciary rule, the impartial conduct standard applies to firms that recommend products to retirement accounts.  Nevada has already passed its own fiduciary legislation.  Now, Massachusetts uses its enforcement powers to compel fiduciary compliance.  Expect other states to follow.