Massachusetts Requires Fee Table for State-Registered Advisers
Massachusetts has become the first state to require investment advisers to give clients and prospects a one-page standalone fee table to supplement the narrative disclosure that the Securities and Exchange Commission requires in Form ADVs.The state said it will begin enforcing the amended rule requiring the fee-table disclosure on January 1, 2020, although it technically became effective earlier this month.
The table is intended to give a “simplified and more accessible overview” of investment advisers’ fees and services than are provided in the regulatory document that consumer advocates say are rarely read or understood by retail investors.
Investment advisers that have websites must make the table easily accessible on, or from, the site, the state wrote in its adopting release. The requirement applies only to state-registered investment advisers, not to SEC-registered advisers or broker-dealers and their registered persons. Massachusetts has about 1,800 state-registered investment advisers, a spokeswoman estimated.
Massachusetts proposed the table for comment in February 2018. In adopting the required table rule, the state securities division brushed aside one commenter’s concern that compliance will be difficult if others states adopt different version of a fee table.
“The Division is not aware of any other jurisdiction that has proposed an investment adviser fee table,” the adopting release dated June 19, 2019, said. “In the event that other states adopt their own versions of the fee table, or efforts are made to develop a uniform model fee table for all jurisdictions, the Division will consider those developments at the appropriate time.”
Other commenters expressed concern they would be at a competitive disadvantage to advisers in states that do not have a table, but the Massachusetts regulators said the arguments were not persuasive. “The fee table distills information that is already publicly available into a more accessible, user-friendly format,” the release said.
The criticisms echo the broader ones that brokerage firms such as Morgan Stanley and trade groups such as Securities Industry and Financial Markets Association have made against Nevada and New Jersey for proposing fiduciary standards that would apply to broker-dealers and registered representatives in their states. (The state of Maryland recently postponed consideration of a fiduciary standard bill.)
Brokers are currently subject to a suitability standard that is less rigorous than the fiduciary standard applying to investment advisers.
Industry critics of the state fiduciary bills objected to a jumble of regulations that they said would increase costs, and investor confusion, following the Securities and Exchange Commission’s June 5 adoption of a best-interest customer-care standard. They also said that some firms would consider withdrawing from states with a fiduciary standard, giving investors less choice.
Massachusetts Secretary of the Commonwealth William Galvin joined the fray on June 14, seeking comment on a fiduciary rule for state-registered brokers out of concern that Reg BI is weak and does not define “best interest.”