Financial services bar gears up for state fiduciary rule.

Byline: Pat Murphy

State regulations that would impose a heightened fiduciary standard of conduct on broker-dealers and other investment professionals have moved a step closer to reality.

On Nov. 29, Secretary of State William F. Galvin signed off on a proposed fiduciary conduct standard for broker-dealers, agents, investment advisers and investment adviser representatives.

The standard would require financial professionals to exercise the utmost care and loyalty when dealing with their clients. More specifically, investment professionals would be required to provide advice and make financial recommendations based on what is best for the client and without regard to the interests of the adviser or the firm the adviser works for.

"My office has seen firsthand the serious financial harm that investors and savers have suffered as a result of conflicted financial advice. Investors must come first," Galvin said in approving the rule for public hearing.

A public hearing is one of the final steps for formal adoption of the rule. A hearing had not been scheduled as of press time.

Attorneys who represent clients in the financial services industry as well as investors are divided on the impact of the adoption of a state fiduciary rule.

According to former SEC senior counsel Neil T. Smith, the rule will not dramatically change the landscape for financial services professionals in Massachusetts on a day-to-day basis.

"They have already moved toward compliance because this sort of fiduciary rule has been in talks for years," the Boston attorney said. "I don't think this is going to catch anyone in Massachusetts by surprise."

But Boston business litigator Peter R. Pendergast is not as sanguine. He said the proposed rule is so lacking in clarity that investment professionals will have a hard time understanding their compliance obligations.

"I found the new regulation to be overly broad, unduly burdensome, vague and confusing," said Pendergast, who represents primarily the securities industry and its participants, but, also investors, in FINRA securities arbitration, regulatory investigations and enforcement defense.

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"As written, the regulation in many respects is a denial of due process. The participants in the industry have to know what's allowed and what's not allowed."

Peter R. Pendergast, Boston

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"As written, the regulation in many respects is a denial of due process," Pendergast said. "The participants in the industry have to know...