Maryland Fiduciary Rule

Apr 4, 2019

Legislation proposed in the Maryland Senate, Senate Bill 786 – Financial Consumer Protection Act of 2019, contains a controversial fiduciary rule which defines certain investment professionals as fiduciaries. Under the bill, investment advisers, broker-dealers, broker-dealer agents, and insurance producers would be defined as fiduciaries and would be required to act in the best interest of the customer without regard to the financial or other interest of the person (or firm) providing the advice. The bill was proposed by four democratic state senators, Jim Rosapepe, Susan Lee, Bill Ferguson and Mary Washington, before the general assembly on Feb. 4, 2019.

The bill comes at a time when federal law regarding the duties owed by certain financial professionals is in flux. The U.S. Department of Labor’s 2016 fiduciary rule was vacated by the U.S. Court of Appeals for the Fifth Circuit in June 2018. DOL is expected to announce a revised fiduciary rule although it is not clear when. Later this year, Securities and Exchange Commission (SEC) is expected to finalize the proposed package of rulemakings and interpretations referred to as Regulation Best Interest which requires broker-dealers to act in the best interest of a retail customer when recommending any securities transaction or investment strategy. Many critics complain that the Regulation Best Interest does not do enough to protect investors.

Maryland is one of several states that have proposed legislation creating a statutory fiduciary standard for various financial professionals. The common law of Maryland imposes fiduciary obligations upon investment professionals as well as the Maryland Securities Act. Nevada implemented a fiduciary standard on all broker-dealers and advisors giving advice to customers in Nevada. In addition, New Jersey’s Bureau of Securities plans to impose a fiduciary standard on all investment professionals. Maryland’s bill goes further than efforts by other states because it holds all investment professionals to a uniform high standard and it includes insurance agents. Maryland recognizes that insurance agents are in a position of recommending complex, illiquid, and high-cost investments to customers and should be held to an appropriately high standard when making those recommendations.

Critics of the Maryland bill point out that it applies to insurance producers without regard to the type of insurance solicited (life, health, etc.), and does not distinguish between insurance producers acting on behalf of carriers and those acting for insured. Even those who support strong investor protections question whether the implementation of statutory fiduciary standards at the state level will be effective. The concern is that regulations which differ from state to state will only serve to confuse investors and professionals alike.

If you believe that you have been misled by an advisor or insurance agent, please call the Costello Law Group at 410-832-800 (or Toll Free 877-418-0003) for a free consultation.

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