Welcome to Financial Advisor IQ

Galvin Keeps Heat on Scottrade Fiduciary Rule Case

April 19, 2018

The Massachusetts Securities Division wants to prevent the Department of Labor fiduciary rule violation charge it has levied against Scottrade from getting removed to federal court, ThinkAdvisor writes.

In February the state’s top securities watchdog, Commonwealth Secretary William Galvin, charged Scottrade with violating the DOL rule’s impartial conduct requirement when it held sales contests among its advisors.

In March, however, an appeals court vacated the DOL’s fiduciary rule, which purports to require retirement account advisors to put clients’ interests first and had gone into only partial effect last summer. That same month Scottrade filed to remove the case to federal court, saying that Galvin is essentially trying to enforce the DOL’s rule.

After the appeals court’s decision, the DOL said it would not be enforcing even the parts of the rule which had gone into effect, pending review.

But in an April 13 filing cited by ThinkAdvisor, lawyers for the Enforcement Section of the Massachusetts Securities Division claimed Scottrade had failed in two instances to satisfy the terms of the statute used to remove cases to federal court.

The first argument is that federal court doesn’t have jurisdiction over an action by a state agency to enforce the state’s securities act, according to the publication. The second argument is that the securities division’s actions were brought in a state administrative agency and not in a state court, ThinkAdvisor writes, citing the filing.

In addition, the state’s lawyers argued in last week’s filing against Scottrade’s assertion that the Employee Retirement Income Security Act preempts state enforcement actions, according to the publication. That’s because the regulator’s action is in regard to individual investors and their individual retirement accounts, over which Title I of ERISA has no bearing, ThinkAdvisor writes, citing the filing. Title II of ERISA would be “arguably relevant” here, the lawyers wrote — but added that when lawyers and the courts refer to ERISA, “more often than not, they mean Title I of the Act,” according to the publication.

By Alex Padalka
  • To read the ThinkAdvisor article cited in this story, click here.