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Legislation

Maryland consumer protection bill includes fiduciary duty provision

Maryland lawmakers introduced legislation that would compel broker-dealers, insurance agents and investment advisers to act in the best interest of clients.

The Financial Consumer Protection Act of 2019, which includes a fiduciary provision, has been introduced by Democrats in Maryland's House and Senate chambers. Sen. James Rosapepe, who introduced the bill in the Senate, said the state can do a better job of protecting consumers. "(Financial professionals) have a fiduciary responsibility, morally, to make sure that their advice is in your best interest, but that has not been the law," he said at a press conference Monday.

The bill would require those financial professionals to act in the best interest of the customers "without regard to the financial or other interest of the person or firm providing the advice."

Delegate Ned Carey, who introduced the bill in the Maryland House, said at the press conference that ensuring consumers have the best protections possible has been a goal of his. "This bill, I believe, does that," he added.

The bill's introduction comes at a time when the Securities and Exchange Commission is considering its standards-of-conduct proposal that includes a best-interest standard, or Reg BI. That standard would require brokers to put clients' financial interests ahead of their own and requires them to mitigate financial conflicts.

The SEC introduced the package in April 2018 and said it will issue a final rule before September.

Bradford Campbell, a Washington-based partner for Drinker, Biddle & Reath, said states crafting their own fiduciary rules will not "serve anybody's interest well if we end up with a patchwork of slightly different legal requirements and remedies that vary from state to state."

He'd prefer states wait for the SEC to issue a final rule before moving forward on their own. "The SEC is the midst of doing substantive rulemaking," he added. "It's not as though there isn't anything happening here and the states are running the risk of really jumping the gun here in a way that's not going to be helpful for ordinary consumers of financial advice."

Kenneth E. Bentsen Jr., president and CEO of the Securities Industry and Financial Markets Association, echoed the sentiments. "The promulgation of standard of conduct laws and rules at the state level, such as the one under consideration in Maryland, while well intentioned will result in a patchwork of conflicting conduct standards, resulting in investor confusion, and ultimately less access to information and choice of products for investors," Mr. Bentsen said in a statement Monday.

Bruce Ferguson, senior vice president for state relations at the American Council of Life Insurers, urged Maryland lawmakers in a statement to "think twice" about the fiduciary provision because it would "do more harm than good" to the Marylanders it is intended to benefit. "It will deny many savers in the state access to vital financial and retirement security products at the very time they are most needed, especially by low and moderate-income Marylanders," Mr. Ferguson added.

After the 5th U.S. Circuit Court of Appeals vacated the Department of Labor's fiduciary rule in March 2018, saying it represented regulatory overreach, officials in several states openly considered their own fiduciary standards. Notably, in Nevada, lawmakers passed a fiduciary-duty law in 2017 but state regulators have yet to put forth details specifying what the new requirements will be.