William Galvin, Massachusetts' topsecurities regulator.

William Galvin, Massachusetts' top securities regulator, saidFriday that he has finalized the state's fiduciary rule to impose "a true fiduciaryconduct standard" in Massachusetts.

The new regulations, which take effect March 6, requirebroker-dealers and their agents to provide investment advice andrecommendations "without regard to the interests of anyone but thecustomer." A prominent consumer advocate, however, said the finalrule had been weakened from the original version.

Enforcement of the regulations will start on Sept. 1.

"Since the SEC has failed to enact a meaningful conduct rule toprotect working families from abusive practices in the brokerageindustry, it has been left to my office to apply a real fiduciarystandard on broker-dealers and agents in Massachusetts," Galvinsaid Friday in a statement. "Enacting this rule will providestronger protections for Massachusetts investors, by imposing aheightened duty of care and loyalty on broker-dealers andagents."

Galvin added that the Massachusetts standard will protectretirees in the state and "their hard-earned retirement savingsfrom conflicted investment advice, which has been shown to costinvestors billions of dollars each year."

The new rule also prohibits sales contests, which Galvin'soffice has identified "as a repeated cause of harm toinvestors."

The rule goes beyond the SEC's Regulation Best Interest, whichGalvin said "bans only those contests which are product-specific orlimited to particular securities in particular time periods."

George Michael Gerstein, co-chair of the Fiduciary GovernanceGroup at Stradley Ronon in Washington, told ThinkAdvisor's HumanCapital podcast on Tuesday that Masschusetts would likely be thefirst state to finalize a fiduciary rule. "I'm assuming there willbe litigation brought against [the Massachusetts rule] onpre-emption and other grounds," Gerstein said. Other states "willwait to see how the litigation plays out" before moving ahead.

Ken Bentsen, president and CEO of the Securities Industry andFinancial Markets Association, said in a Friday statement thatSIFMA looks forward to reviewing the rule "with particularattention on whether it is consistent with existing federalfiduciary and best interest standards to which our members aresubject, or whether it may conflict in ways — whether intended orunintended — that would impede our members from best serving theirretail clients."

Barbara Roper, director of investor protection for the ConsumerFederation of America, told ThinkAdvisor on Friday that theconsumer group is "very disappointed by the extent to which theyhave weakened the proposal."

The biggest change, she said, "is the extent to which they[Massachusetts] walked back the obligation to provide ongoingmonitoring of accounts. Under the proposal, that obligation wouldhave applied whenever there is ongoing compensation or where theinvestor has a reasonable expectation, based on how the brokerholds out and markets their services, that they will be providingongoing services. Both were removed."

The language on ongoing monitoring, she continued, "now closelytracks Reg BI, which we had strongly opposed because it is weakerthan court interpretations under common law. By eliminating thelanguage on ongoing compensation, they weakened the incentive forfirms to move to clean shares."

The Massachusetts proposal also covered recommendationsof annuities and other insurance investments. "The final does not,"Roper said. "So brokers will be fiduciaries when recommendingmutual funds or ETFs but not when recommending annuities, where theprotections are even more needed."

Added Roper: "What's left is a modest improvement on Reg BI butnot a model that other states should follow."

READ MORE:

• Will Reg BI preempt states' fiduciarystandards?
• Brokers aim to quash New Jersey conflict rule nowthat SEC has approved Reg BI
• SECURE Act doesn't insulate annuities in401(k)s from a fiduciary standard