State Enforcement Action Has Department of Labor Fiduciary Rule Implications

Gavel, scales of justice and law books

On February 15, 2018, the Massachusetts Securities Division filed an administrative complaint against a brokerage firm based on policies and procedures that were adopted in light of Department of Labor (DOL) Fiduciary Rule requirements.  In its Complaint, the Division alleged that certain sales contests held in 2017 violated those policies and procedures and constituted unethical or dishonest conduct in violation of applicable state securities laws.

The firm’s policies and procedures were updated to address the DOL’s Impartial Conduct Standards, including the requirement to act in the best interest of retirement investors.  Adherence to the Impartial Conduct Standards is now required based on the DOL Fiduciary Rule’s transition period requirements that became effective in June of last year.  For more information about those requirements, please see our blog, DOL Extends Fiduciary Rule Transition Period.

The Massachusetts enforcement case is significant and has attracted attention for a few reasons:

  • It is the first enforcement action related to the DOL Fiduciary Rule.
  • The DOL has indicated that enforcement of the DOL Fiduciary Rule would not be its priority with respect to firms that are making a good faith effort to comply.
  • Certain industry experts have expressed concern as to whether the Division has properly exercised its state enforcement authority.
  • It is part of a growing trend on the part of state regulators to address the fiduciary responsibilities of investment professionals who offer products and services to retail investors.
  • Other state securities regulators may choose to initiate similar enforcement actions.

Expected Activity in 2018

The Department of Labor will continue its evaluation of the DOL Rule.  In the meantime, SEC Commissioner Clayton has acknowledged the need for SEC rulemaking in this area and the SEC has issued a request for comments.  It has been reported that DOL and SEC officials have been collaborating to produce a single industry standard that would apply to advice that is given to retail investors for both retirement accounts and non-retirement accounts.  Proposed SEC regulations are expected later this year.

Certain states have proposed laws or regulations requiring adherence by brokers to a fiduciary standard.  Other states may do the same.

Oyster will be monitoring these efforts closely and will continue to keep you informed about significant developments.

How Oyster Can Help

Oyster Consulting has the knowledge and experience to support your efforts to operate in compliance with the DOL Rule.  To learn more about our DOL Service Offering and the impacts of the DOL Rule, complete our contact form or call (804) 965-5400 and we will put you in touch with our experts.