In a recent Alert, we discussed how several states are charting their own course while the U.S. Department of Labor (“DOL”) proceeds with its review of the Fiduciary Rule, the Best Interest Contract Exemption (“BICE”) and other related exemptions. Yesterday, Massachusetts filed suit against a broker-dealer firm for violations of the Fiduciary Rule.
The Massachusetts Securities Division of the Office of the Secretary of the Commonwealth (“Division”) filed an administrative complaint against Scottrade, Inc. (“Scottrade”) for violations of Massachusetts General Laws chapter 110A, Section 204 of the Massachusetts Uniform Securities Act (“Act”) and the regulations promulgated thereunder.
According to the Division, Scottrade adopted policies and procedures designed to comply with the Fiduciary Rule and related prohibited transaction exemptions. These policies said Scottrade would not use contests (and other incentives) that would cause its associates to make recommendations that are not in the interest of retirement accounts. Nevertheless, Scottrade allegedly launched two sales contests, the objectives of which were to generate new assets, including retirement assets, and offered cash prizes, that the Division asserts were in violation of its recently-adopted policy.
The Division noted that under the DOL’s temporary enforcement policy, the DOL would not pursue claims against investment advice fiduciaries who were working diligently and in good faith to comply with the Fiduciary Rule and the BICE. The Division asserts that Scottrade “knowingly violated its own internal policies related to the Fiduciary Rule” and that this constituted “a clear demonstration that Scottrade has failed to act in good faith to comply with the Fiduciary Rule.”
The Fiduciary Rule became applicable on June 9, 2017. Until July 1, 2019, the “impartial conduct standards” (which we have described in a prior Alert) are the sole conditions of the BICE and the related exemptions.
The Division’s complaint raises numerous issues, most notably, what the role of state agencies is or should be in enforcing ERISA and DOL rules. William F. Galvin, the Secretary of the Commonwealth, is a strong supporter of the Fiduciary Rule. We will monitor this case as it develops.
Please contact Stephen Wilkes or David Pickle if you have any questions.