SJC Upholds Secretary's Fiduciary Duty Rule
9/20/23By: William J. Morrissey
In the case of Robinhood Financial, LLC v. Galvin, the Massachusetts Supreme Judicial Court (“SJC”) has upheld the Secretary of State’s, William F. Galvin (the “Secretary”), so-called Fiduciary Duty Rule, codified at 950 C.M.R. § 12.207(1)(a). The SJC’s decision has widespread implications for broker-dealers and confirms the Secretary’s expansive authority to clarify the legislature’s intent under the Massachusetts Uniform Securities Act (“MUSA”), including what constitutes “unethical or dishonest conduct or practice,” as found in Section 204.
In an attempt to protect inexperienced investors, in an ever-changing trading market, from unethical conduct by broker-dealers, the Secretary enacted the Fiduciary Duty Rule. The Fiduciary Duty Rule raises the investment-advice standard for broker-dealers to the heightened fiduciary standards applied to investment advisors, on the basis that if broker-dealers provide investment advice or recommendations, the investor is entitled to advice made in their best interest and without conflict. The Fiduciary Duty Rule makes it “unethical or dishonest” under the Massachusetts Uniform Securities Act (“MUSA”), for a broker-dealer to “fail … to act in accordance with a fiduciary duty to a customer when providing investment advice or recommending an investment strategy, the opening of or transferring of assets to any type of account, or the purchase, sale, or exchange of any security.”'
The SJC’s ruling upholds the Fiduciary Duty Rule, which imposes additional obligations upon broker-dealers, and affirms the Secretary’s far reaching authority to interpret MUSA and regulate broker-dealers.
In the case of Robinhood Financial, LLC v. Galvin, the Massachusetts Supreme Judicial Court (“SJC”) has upheld the Secretary of State’s, William F. Galvin (the “Secretary”), so-called Fiduciary Duty Rule, codified at 950 C.M.R. § 12.207(1)(a). The SJC’s decision has widespread implications for broker-dealers and confirms the Secretary’s expansive authority to clarify the legislature’s intent under the Massachusetts Uniform Securities Act (“MUSA”), including what constitutes “unethical or dishonest conduct or practice,” as found in Section 204.
In an attempt to protect inexperienced investors, in an ever-changing trading market, from unethical conduct by broker-dealers, the Secretary enacted the Fiduciary Duty Rule. The Fiduciary Duty Rule raises the investment-advice standard for broker-dealers to the heightened fiduciary standards applied to investment advisors, on the basis that if broker-dealers provide investment advice or recommendations, the investor is entitled to advice made in their best interest and without conflict. The Fiduciary Duty Rule makes it “unethical or dishonest” under the Massachusetts Uniform Securities Act (“MUSA”), for a broker-dealer to “fail … to act in accordance with a fiduciary duty to a customer when providing investment advice or recommending an investment strategy, the opening of or transferring of assets to any type of account, or the purchase, sale, or exchange of any security.”'
The SJC’s ruling upholds the Fiduciary Duty Rule, which imposes additional obligations upon broker-dealers, and affirms the Secretary’s far reaching authority to interpret MUSA and regulate broker-dealers.
Take Away:
The SJC has affirmed the Fiduciary Duty Rule, which raises the investment-advice standard for broker-dealers to the heightened fiduciary standards applied to investment advisors.
