Old Line State Looks at Extending Fiduciary Lines
Concerned that the Labor Department’s fiduciary rule could be pared back, Maryland is considering extending fiduciary duty under state law.
The Maryland Senate Finance Committee held a hearing on proposed legislation on Feb. 22, following a Feb. 16 hearing on the legislation by the Maryland House Economic Matters Committee.
The legislation follows recommendations by the Maryland Financial Consumer Protection Commission
, which in January issued an interim report
with wide-ranging recommendations intended to protect Maryland residents when conducting financial transactions and receiving financial services.
In the report, the commission recommended extending fiduciary duty in Maryland to all financial professionals who provide investment advice, arguing that fiduciary protections at the federal level are currently being reevaluated and are likely to be pared back under the Trump administration.
In particular, the Commission pointed out that Maryland law does not explicitly extend a fiduciary duty for investment advice to broker-dealers or their agents. The Commission argued that extending fiduciary duty to all financial professionals who provide investment advice would better align the duties of all financial advisors, ensuring that they all give advice in the best interests of investors. Furthermore, the Commission argued that such a state-level fiduciary duty would further protect Maryland investors from possible predatory practices and provide recourse to Maryland investors who may be ill-advised by a financial professional.
In response to the Commission’s interim report, the Maryland legislature introduced the Financial Consumer Protection Act of 2018 (HB 1634, SB 1068). These concurrent bills aim to implement the Commission’s consumer protection recommendations. The legislation contains a provision that explicitly names a broker-dealer or agent, and investment adviser who “engages in the business of effecting transactions in securities for the account of others or for the person’s own account” as a “fiduciary” with a “duty to act primarily for the benefit of its clients.” Such a person must disclose to a client if the person may receive compensation based on the advice and must notify the client of any legal or disciplinary event that is material to an evaluation of the person’s integrity. Such a person must also make a diligent inquiry of each client to determine the financial circumstances and needs of the client.
It remains to be seen whether the full Maryland General Assembly will take up these bills in the 2018 session now that the hearings have been completed, or whether any changes to the legislation will be made if and when these bills move further through the legislature. The Maryland Financial Consumer Protection Commission is expected to issue its final report by the end of 2018.
Andrew Remo is the American Retirement Association’s Director of Legislative Affairs.