Massachusetts Gov. Charlie Baker is asking the state Securities Division to pull its fiduciary proposal off the table, citing concerns it will cause "confusion" in the financial services industry.
Baker sent a letter Tuesday to Secretary of the Commonwealth William Galvin urging him to defer action on the proposed regulation. Galvin’s Securities Division conducted a hearing on the proposal Tuesday in Boston.
"The draft regulation does not appear to sufficiently account for differences in the industry, inadequately defines key terms, and how regulated entities can resolve potential conflicts of interest, and departs from federal regulations and regulations adopted in other states," reads Baker's letter.
The Republican governor is to the right of Galvin, a Democrat. The offices are independently elected positions.
The proposal will impose a uniform fiduciary conduct standard on broker-dealers, agents, investment advisors and investment advisor representatives providing financial advice to any clients in Massachusetts.
If the rules become law, financial recommendations and advice must be based on “what is best for the customers and clients, without regard to the interests of the broker-dealer, advisory firm and its personnel," Galvin has said.
Baker noted that the National Association of Insurance Commissioners is completing work on an annuity sales model law it will likely send to all states this year. The industry is hoping for a uniform set of standard and is willing to accept a best-interest standard for annuity sales.
Wayne Chopus, president and CEO of the Insured Retirement Institute, cautioned regulators that, while well-intentioned, the proposed regulation could limit consumers' access to valuable financial planning services and products.
Massachusetts should allow the Securities and Exchange Commission's Regulation Best Interest (Reg BI) to take effect and be allowed time to evaluate its strong consumer protections before additional, potentially duplicative regulations are considered, Chopus added.
Reg BI is a federal standard of conduct rule that will take effect July 1, 2020.
"Reg BI represents a substantial strengthening of investor protection compared to existing law in a manner that is consistent with the principle that financial professionals should be required to act in their clients' best interest when providing personalized investment advice," Chopus said.
"In our view, Reg BI will achieve the Division's goals without the need for further rulemaking. Moreover, it does so in a manner that will preserve investor choice and access to the products and services they need to achieve their financial goals."
The Massachusetts proposal ignores the differences between the types of financial professionals and could have an adverse impact on investor choice, cost, and investor access in the market for financial advice, Chopus said.
IRI noted that implementation of the Massachusetts regulation would make the Bay State an outlier among other states and make it more difficult for financial services businesses to operate in the state.
According to the research group LIMRA, the average income of an annuity owner is $64,000.
"Fiduciary advisers typically require a minimum retirement account balance of $100,000 to make managing someone’s money worth their while because they charge a percentage of the account to give advice," said Susan Neely, president and CEO of the American Council of Life Insurers, who testified at Tuesday's hearing.
"How many middle- and working-class savers will be able to pay the freight? The result is an advice gap for all but the wealthy."