Massachusetts Scores a Victory for Fiduciary Advice
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On August 25, Massachusetts’ highest court shocked the investment world by unanimously ruling against Robinhood and for the state’s fiduciary rule. Robinhood must change its ways to remain in business.
The case was brought by Massachusetts Secretary of State William Galvin. He asserted that Robinhood, a broker-dealer, was misleading its customers and not acting as a fiduciary. Galvin argued that Massachusetts’ state fiduciary rule should govern Robinhood’s behavior, not Reg BI, which is enforced by FINRA.
The ruling’s very first sentence puts the case against Robinhood into sharp relief:
Unlike the fabled “Prince of Theves,” who took from the rich to give to the poor, the plaintiff Robin-hood LLC (Robinhood) is accused by the Secretary of the Commonwealth (Secretary) of taking advantage of unsophisticated investors to fill its own coffers by dispensing ill-suited investment advice to these customers and by encouraging them to engage in risky trading practices using its online trading platform.