Maryland fiduciary standard proposal rejected in committee

A bill in Maryland that would have compelled broker-dealers, insurance agents and investment advisers to act in the best interest of clients was rejected Wednesday in committee.

The Financial Consumer Protection Act of 2019, which included a fiduciary provision, was voted down by the state's Senate Finance Committee. The bill was introduced by Democrats in both legislative chambers in February and would have required broker-dealers, insurance agents and investment advisers 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."

During hearings on the bill last month, several industry stakeholders urged lawmakers to remove the fiduciary standard provision, saying it will drive up compliance costs for financial advisers, limit services and increase costs for investors as well as potentially get in the way of the Securities and Exchange Commission's standard of conduct package proposal, known as Reg BI, which offers a provision similar in scope.

Jason Berkowitz, chief legal and regulatory affairs officer for the Insured Retirement Institute, who testified at last month's hearings, was happy with the bill's rejection. "Maryland now has an opportunity to participate in a constructive dialogue with other interested regulatory bodies to establish consistent and clear standards for recommendations made with respect to all securities and insurance products," he said in a statement.

In a letter to the SEC last week, Kevin Carroll, managing director and associate general counsel of the Securities Industry and Financial Markets Association, urged the agency to highlight the National Securities Markets Improvement Act when it finalizes its Reg BI proposal. NSMIA preempts states from regulating federally registered RIAs and from imposing books and records requirements on broker-dealers that differ from, or are in addition to, federal requirements, the letter said.

SIFMA is against states implementing their own fiduciary standards, saying those laws will create a patchwork of regulation. "A state-by-state approach to (broker-dealer) conduct standards would introduce a new level of investor confusion that would undercut not only the SEC's prospective Reg BI but also the interest of investor protection generally," the letter said.

Since being introduced, the House version of the bill hasn't moved and is expected to expire April 8 when the Maryland legislature adjourns.