Massachusetts high court upholds state fiduciary rule covering brokers

investmentnews.com:

The highest court in Massachusetts upheld the state’s investment advice standard that imposes fiduciary duty on brokers, dealing a setback to online brokerage Robinhood’s effort to kill the regulation.

The Massachusetts Supreme Judicial Court ruled Friday that the state’s top securities regulator, Secretary of the Commonwealth William Galvin, acted within his authority in September 2020 when he established the state’s investment advice rule imposing fiduciary duty on brokers.

The court also held the measure does not conflict with Regulation Best Interest, the broker-dealer standard promulgated by the Securities and Exchange Commission that went into force in June 2020.

In March 2022, a Massachusetts Superior Court judge struck down the Massachusetts fiduciary rule in a suit brought by Robinhood in April 2021. The online brokerage was responding to a lawsuit Galvin filed against Robinhood in December 2020 for violating the state’s fiduciary rule through features of its online trading app that allegedly targeted inexperienced investors.

Galvin appealed the Superior Court decision to the Massachusetts Supreme Judicial Court, which overturned the lower court’s ruling Friday.

The Massachusetts high court held that Galvin acted appropriately in promulgating a fiduciary rule because it does not violate state law nor is it overridden by Reg BI.

“[W]e conclude that the Regulation Best Interest constitutes a regulatory floor that does not foreclose State regulation to more clearly protect investors,” the Massachusetts court wrote in its opinion. The case was remanded to the lower court for further administrative proceedings.

Galvin celebrated his victory.

“This landmark decision affirms the fiduciary duty of brokers to their