The Massachusetts Securities Division is soliciting public comments from which to propose a fiduciary standard for broker-dealers, agents, investment advisers and investment adviser representatives when they make investment recommendations and provide investment advice. Massachusetts joins Nevada and New Jersey in proposing a state standard from the belief that the SEC’s recently adopted Regulation Best Interest rule does not go far enough in protecting investors against conflicts of interest in the financial industry. Specifically, says the Division and Commonwealth Secretary William Galvin, “the SEC’s Regulation Best Interest fails to define the key term ‘best interest’ and sets ambiguous requirements for how longstanding conflicts of interest in the securities industry must be addressed under the new rule.”
The following Massachusetts enforcement cases were cited as proof of the serious financial harm that investors and savers in the Commonwealth have suffered as a result of conflicted financial advice:
- sales contests at large broker-dealer firms involving cross-selling and sales in violation of internal policies and procedures;
- churning in a senior citizen's brokerage account involving covered securities;
- unsuitable sales of securities products to a senior citizen by a representative working out of the offices of a large state-chartered bank;
- unsuitable sales of alternative investments, including structured CDs, non-traded REITs, and BDCs, by representatives of a broker-dealer working out of state-chartered bank premises;
- sales of non-traded REITs by representatives of a large, independent broker-dealer that failed to adequately supervise its agents' sales activities; and
- failure to supervise by a large, independent broker-dealer of its representative who made unsuitable recommendations involving sales of the exact same financial product, carrying a very high commission, to more than 80 customers.