Massachusetts Fiduciary Rule Upheld by Top Court

The Massachusetts Supreme Judicial Court ruled Friday to uphold the Massachusetts fiduciary rule and allow Secretary of State William Galvin’s administrative case against Robinhood to move forward.

In April, Galvin, Massachusetts’ top securities regulator, appealed a Superior Court judge’s decision issued last March that struck down the state’s fiduciary rule.

In its ruling, issued Friday, the Massachusetts Supreme Judicial Court stated that the case “concerns the question whether, by promulgating the fiduciary duty rule, the Secretary overstepped the bounds of the authority granted to him under [Massachusetts Uniform Securities Act] MUSA. We conclude that he did not.”

The court added that the state’s fiduciary duty “rule does not override the common-law protections available to investors, that MUSA is not an impermissible delegation of legislative power, and that the rule is not preempted by the Securities and Exchange Commission’s (SEC) determination to impose a national ‘best interest’ standard of care on broker-dealers.”

Galvin said Friday in a statement that he is ”pleased and gratified that the Court has ruled that our Fiduciary Rule is an appropriate exercise of my authority under the Massachusetts Uniform Securities Act.

“This landmark decision affirms the fiduciary duty of brokers to their customers and vindicates the role of my Securities Division to principally, but aggressively protect investors and police broker-dealer misconduct,” he explained.

Robinhood filed a lawsuit in April 2021 to overturn Massachusetts’ fiduciary rule, arguing that Galvin exceeded his authority in promulgating the state’s fiduciary rule. Judge Michael Ricciuti agreed in a ruling issued a year ago.

The state’s fiduciary rule “that has been upheld by the Supreme Judicial Court today will give the highest protections to Massachusetts investors when brokers provide investment advice,” Galvin said in his statement. “Now that the case has been remanded to the Superior Court, I look forward to moving on with our administrative case.”

The case against Robinhood that the court allowed to move forward involves Galvin accusing Robinhood in December 2020 of violating state law by using overly “aggressive tactics to attract new, often inexperienced, investors” and “gamification to encourage and entice continuous and repetitive use” of its mobile application.

Knut Rostad, president of the Institute for the Fiduciary Standard, said Friday in a statement that the Massachusetts Supreme Judicial Court “ruled for investors” by upholding the Massachusetts fiduciary duty rule.

The ruling “is a Fenway Park Red Sox grand slam home run that will be reviewed by many other state securities administrators in the months and years ahead,” Rostad opined.

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