Let’s do the right thing for Massachusetts’ savers

Let’s do the right thing for Massachusetts’ savers
The proposed regulation that aims to protect investors would end up increasing pressure on the state's working families
FEB 05, 2020
In December, the Secretary of the Commonwealth of Massachusetts unveiled a well-intended financial regulation aimed at enhancing investor protections. Unfortunately, if implemented in its current form, it will exacerbate income inequality and increase pressure on Massachusetts’ working families to save and invest in their future. The proposed regulation seeks to prevent conflicts of interest from influencing investment advice. It places new restrictions on what financial professionals can say, sell, and receive in compensation, when working with Massachusetts investors. While this sounds like common sense, it’s simply regulation for regulation’s sake. Just last year, the Securities and Exchange Commission finalized a national “best interest” standard, known as Reg BI, that addresses every one of those issues. Without question, Reg BI is the most significant investor protection regulation adopted by the SEC since 1934, and it accomplishes exactly what Massachusetts seeks to achieve. For Massachusetts to move forward with its own state-based rule when a strong national standard already exists is unnecessary. Thankfully, some of Massachusetts’ most-trusted current and former political leaders recognize this rule for what it is: bad public policy. As Gov. Charlie Baker recently wrote, this rule has the potential to “reduce investment services and products that many of our citizens rely upon to properly save and invest for a variety of needs ranging from retirement to higher education.” Barney Frank, the former Massachusetts congressman, warned in 2011 that any regulation governing the conduct of investment professionals must be done “in a way that does not have adverse effects on the choices available to consumers, municipalities and pension plans, among others.” Both individuals’ concerns suggest the proposed rule would unintendedly harm the working families of Massachusetts. To better understand the views of Massachusetts voters, the American Securities Association recently commissioned Boston-based Beacon Research to survey Massachusetts voters on several topics, including how they prefer to get help with their finances and how they would react to Massachusetts’ proposal. The survey found that 90% of respondents view the SEC’s Reg BI national standard as reasonable or too tough. This begs the question: Why does Massachusetts need its own state law when a tough national standard already exists? Respondents preferred to work with a financial professional rather than searching for answers themselves online. Fifty-four percent of those surveyed said they had worked with a financial professional in the past, and among this group, 85% were very satisfied with the personalized financial advice they received. The survey also suggests citizens are concerned about any policy that could harm the ability of low-income earners to save. A majority said they are skeptical about any policy that increases the unfair gap between wealthy and middle-class families. A similar number expressed alarm about any proposal that would force consumers into more expensive fee-based accounts. These responses suggest that a large segment of the population believe it’s not worth the risk to put face-to-face financial advice at risk, as this proposal would. It also suggests that not everyone is ready to go online or move into a fee-based account. For many consumers, ongoing fees rather than one-off commissions will increase costs. For others, particularly savers with small investments, fees make no economic sense. In fact, many investors who work with financial professionals today do not have enough invested to meet the account minimums typical of fee-based accounts. Massachusetts’ savers deserve better. Importantly, the ASA survey and others like it also suggest consumers want strong protections. They rightly support rules that require financial professionals to put their clients’ interest first and hold the financial industry accountable. This is exactly what the SEC’s national standard does. Massachusetts residents are working hard to save and invest for retirement, to plan for their children’s education, and to save money for a rainy day. The Secretary of the Commonwealth should take this opportunity to do the right thing to make it easier, not harder, for working families and savers to achieve financial independence and drop this duplicative proposal. [More: Brokerage industry opposes Massachusetts fiduciary rule proposal at hearing] Christopher A. Iacovella is the chief executive officer of the American Securities Association.

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