Legislation introduced this week by Maryland state lawmakers would raise investment advice standards for brokers and insurance representatives — marking an expansion of coverage compared to a Securities and Exchange Commission proposal.
The Financial Consumer Protection Act of 2019, introduced in the Maryland Senate on Monday and recently posted online, contains a short provision that would make brokers and insurance agents fiduciaries and would require them to act in the best interests of their customers "without regard to" their own financial gain.
The bill also places the same requirement on investment advisers, who already must meet a fiduciary standard.
The inclusion of insurance agents makes the Maryland approach closer to that of the now-defunct Labor Department fiduciary rule that would have applied to retirement accounts. The move brought immediate resistance from the industry.
"We strongly urge the legislature to think twice about a bill that would do more harm than good to the Marylanders it is intended to benefit," Bruce Ferguson, senior vice president for state relations at the American Council of Life Insurers, said in a statement. "It will deny many savers in the state access to vital financial and retirement security products at the very time they are most needed, especially by low- and moderate-income Marylanders."
The ACLI supports a standard similar to the one the SEC has proposed in its Regulation Best Interest, which is designed to raise the broker standard from the current suitability standard. The SEC released its proposal last April; a final rule is expected sometime this summer.
But a fiduciary advocate applauded Maryland lawmakers for targeting insurance sales.
"Insurance producers have a significant impact on the marketplace and they are important to a lot of ordinary investors and consumers," said Knut Rostad, president of the Institute for the Fiduciary Standard. "It's good that they are brought in under this legislation."
An aide to one of the Maryland bill's authors, Sen. James Rosapepe, D-College Park, said a hearing will be scheduled in the Senate Finance Committee. A House companion bill could be introduced as soon as Friday.
Financial industry trade associations say state-level activity could produce an array of advice regulations.
"We want the states to stand down," said Lisa Bleier, managing director and associate general counsel at the Securities Industry and Financial Markets Association. "Each state could take a different approach and create conflicting regulations. That's why we support a federal solution."
Michelle Carroll Foster, vice president for state affairs at the Financial Services Institute, agrees a national standard of care should be promulgated by the SEC.
"There are a lot of unknowns given that Reg BI is not final," Ms. Foster said.
That's all the more reason to make progress at the state level, Mr. Rostad said.
"It's great that another state is moving ahead to protect investors while the SEC falters," he said.