Subject: Greater Boston Chamber of Commerce Comments re: Proposed Regulations – Fiduciary Conduct Standard
From: James Rooney
Dear Secretary Galvin,
On behalf of the Greater Boston Chamber of Commerce, I am writing to express our concerns regarding the proposed Fiduciary Conduct Standard for Broker-Dealers, Agents, Investment Advisers, and Investment Adviser Representatives, which would apply a heightened fiduciary duty to broker-dealers, agents, investment advisors and investment adviser representatives. This proposal will cause significant, unintended negative consequences for consumers in Massachusetts who are saving for retirement or using broker dealers as part of a personal investment strategy. We urge the Division to delay action on implementing new state regulations until after new federal guidance under Regulation Best Interest (Reg BI) is implemented and only if that fails to adequately protect Massachusetts investors.
Reg BI is a continuation of the National Securities Markets Improvement Act (NSMIA), which for nearly two decades has set a precedent of strong federal regulation of capital markets. Reg BI is designed to provide clear guidance to the industry and a consistent, valuable experience to consumers across the country by strengthening the broker-dealer standard of conduct beyond any historical measure. It is a thoughtful and comprehensive regulation that places the interest of a retail investor ahead of the interests of the firm or financial professional with whom they are working.
The net impact of the proposed Massachusetts fiduciary conduct rule would be overwhelmingly negative for all stakeholders, ranging from individual broker-dealers to retail investors. The cost of doing business will increase for broker-dealers, while the menu of services they are able to offer clients will decrease. As a result, clients will likely be redirected to a more expensive investment advisor model to ensure compliance but the cost this model will be prohibitive for many potential smaller scale and retail investors. Long-term, this will pose a risk to average investors ability to build savings and wealth.
The proposal also puts the Massachusetts municipal bond market at risk of disruption. Currently, there is a strong network of underwriting syndicates, broker-dealers and municipalities that work in harmony. Under the new proposal, firms that agree to participate in the underwriting syndicate for municipal bonds in Massachusetts likely will interpret the regulation as barring their broker-dealer from then selling those same bonds on a principal basis to their Massachusetts-based investors since the proposal's duty of loyalty makes no reference to how a firm can engage in principal activities and still meet their duty of loyalty. If firms are forced to choose between both underwriting Massachusetts bonds and then selling those bonds only on an agency basis, and not on a principal basis, we believe the firms may choose to opt out of the underwriting process, or significantly diminish their willingness to participate. The same disruption will limit the value of municipal bonds, which will diminish the related underwriting market, ultimately hurting residents and municipalities across the Commonwealth.
This industry is the subject of extensive federal regulation and has existing mechanisms in place to protect consumers. We believe the new Reg BI is an important addition to this framework and the state should allow that regulation to be implemented before moving forward on its own rule. We urge the Division not to move forward with this new regulation for at least one year after implementation of Regulation Best Interest, whose compliance date is June 30, 2020.
James E. Rooney
President and CEO
Greater Boston Chamber of Commerce