Brokers in Maryland would have to act in the best interests of their clients under a Senate bill making its way through the state legislature.
Maryland investment advisers currently must meet such a fiduciary requirement. The provision that extends fiduciary duty to brokers is part of a larger bill, the Financial Consumer Protection Act of 2018, that will be the focus of a Feb. 22 hearing of the Maryland Senate Finance Committee.
The legislation, which implements the recommendations of the Maryland Financial Consumer Protection Commission, also includes provisions related to consumer borrowing and student loans.
The bill's primary sponsor, Sen. James Rosapepe, D-College Park, said that it is designed to preserve financial reforms that were put in place following the financial crisis of 2008-09.
He cited the Labor Department's fiduciary rule as one that is now being threatened. That regulation was partially implemented last June, but the remaining provisions are being reassessed in a review mandated by President Donald J. Trump that could result in major changes.
"In Maryland, we're trying to do our part to protect our citizens from financial abuses," Mr. Rosapepe said.
The Financial Services Institute, which represents independent broker-dealers and financial advisers, opposes the fiduciary-duty provision of the Senate bill and was able to get it removed from the House version of the legislation.
In a Feb. 16 letter to the leaders of the House Economic Matters Committee, FSI executive vice president and general counsel David Bellaire said that states should hold off on passing their own fiduciary laws and let the Securities and Exchange Commission take the lead.
The SEC has indicated that it will propose a fiduciary-duty rule for retail investment advice this year.
"Individual state legislation on this issue will lead to duplicative regulation, investor confusion, legal conflicts and compliance challenges without providing additional investor protection benefits," Mr. Bellaire said in a statement. "The proposed Senate bill would ultimately limit investor access to affordable, professional financial advice and education through excessive cost and compliance burdens."
The Maryland commission asserted that extending fiduciary duty to brokers "better aligns the duties of all financial advisors, ensuring that they all give advice in the best interests of investors," a summary of the consumer protection bill states. "Such a fiduciary duty further protects investors from possible predatory practices and provides recourse to investors who may be ill-advised by a financial professional."
Maryland is the latest state to jump into the fiduciary fray. Last week, Massachusetts filed an enforcement action against Scottrade Inc. based upon the broker's alleged violation of the DOL rule. A bill recently introduced in the New Jersey legislature would require non-fiduciary advisers to make a declaration of that status to clients. Nevada is working on regulations to implement a fiduciary-duty law enacted last year.
So far, the fiduciary issue has mostly Democratic participants in Maryland. All 28 sponsors of the Senate bill are Democrats, as are 15 of the 16 sponsors of the House bill.
Mr. Rosapepe isn't sure whether he'll get Republican support.
"This isn't a partisan issue," he said. "This is about protecting people's retirement savings."