The Massachusetts Securities Division has proposed a fiduciary duty for broker-dealers, agents, investment advisers, and investment adviser representatives when they provide investment advice; recommend an investment strategy; open or transfer assets to any account type; or buy, sell or exchange any security, commodity or insurance product. Specifically, the above-mentioned industry persons are deemed to act unethically and dishonestly when they fail to act as fiduciaries for their customers or clients (as defined in the rule) during any period they:
- have or exercise discretion over a customer’s or client’s account (unless the discretion relates solely to the time and/or price of the order’s execution);
- have a contractual fiduciary duty;
- have a contractual obligation to regularly or periodically monitor a customer’s or client’s account;
- receive ongoing compensation or charge ongoing fees for advising a customer or client about the value of securities or the value of investing in, buying, or selling securities; or
- engage in an act, practice or business resulting in a customer or client having a reasonable expectation that the respective broker-dealer, agent, investment adviser, or investment adviser representative will regularly or periodically monitor the customer’s or client’s account(s) or portfolio.
Two fiduciary duties. Broker-dealers, agents, investment advisers, and investment adviser representatives have both a fiduciary duty of care and a fiduciary duty of loyalty, as described in the rule.
Customer and client exclusions. A "customer" or "client" includes current and prospective customers and clients but does not include:
Customer and client exclusions. A "customer" or "client" includes current and prospective customers and clients but does not include:
- financial institutions such as banks, savings and loans, insurance companies, trust companies, or registered investment companies;
- broker-dealers registered with a state securities commission;
- investment advisers registered with the SEC or with a state securities commission; or
- other institutional buyers.
When not a fiduciary duty. The fiduciary duty does not apply to persons acting as Employment Retirement Income Security Act (ERISA)-defined fiduciaries for an employee benefit plan, its participants, or its beneficiaries. Also, the fiduciary duty does not mandate any capital, custody, margin, financial responsibility, recordkeeping, bonding, financial, or operational reporting for broker-dealers or agents that differ from, or are in addition to, 15 U.S.C. §78o(i) requirements.