Background and Ruling
The Significance of Galvin's Rule
In March 2020, Galvin introduced a fiduciary rule that would raise the standard of conduct for brokers to the level of registered investment advisors. Massachusetts was one of the first states to pursue a uniform fiduciary standard following the enactment of Regulation Best Interest by the Securities and Exchange Commission during the Trump administration. This regulation created a two-track regulatory framework that allowed brokers to avoid a strict fiduciary standard.
Allegations Against Robinhood
Massachusetts brought charges against Robinhood in December 2020, alleging that the trading app had violated its fiduciary duty under the state's new rule. In April 2021, a lawsuit was filed against Robinhood seeking to revoke its license under the state's regulation. The outcome of the challenge to the state's fiduciary rule has yet to be determined.
This landmark decision reaffirms the fiduciary duty of brokers to their customers and highlights the role of the state's Securities Division in protecting investors and addressing broker-dealer misconduct. As the legal battle continues, Robinhood will need to reevaluate its approach and consider the potential implications of this ruling.
The Court's Opinion
Furthermore, Wendlandt argues that Massachusetts is not pre-empted from pursuing its own fiduciary regulation by the SEC’s Regulation Best Interest. She emphasizes how the once-distinct service models of broker-dealers and investment advisors have converged, leading to a necessity for clarification in order to protect investors adequately.
State Regulation and Investor Protection
Wendlandt points out that while the Regulation Best Interest sets a regulatory floor, it does not prevent states from implementing stronger rules to better safeguard investors. This important aspect reassures industry experts, such as Knut Rostad from the Institute for the Fiduciary Standard, who believe that more states will now explore the possibility of advancing their own fiduciary rules.