While the torpedoing of the Massachusetts fiduciary rule by a superior court judge on Wednesday is "tough fiduciary news," Massachusetts likely "took the wrong approach to begin with" in enforcing its fiduciary rule against trading app Robinhood, popular blogger and advisor Michael Kitces stated Thursday on Twitter.
"Is the way Robinhood promotes stock trading concerning?" he tweeted. "Oh yeah. But is Robinhood giving ADVICE? No. It's a brokerage app."
Robinhood filed a lawsuit in April 2021 to overturn Massachusetts' fiduciary rule, arguing that Secretary of State William Galvin, Massachusetts' top securities regulator, exceeded his authority in promulgating the rule.
Judge Michael Riccuiti agreed in his Wednesday ruling.
Galvin's office told ThinkAdvisor Thursday they were considering an appeal.
In its administrative action, Galvin alleged that Robinhood violated the Massachusetts Uniform Securities Act, by, among other things, "breaching a fiduciary duty that it allegedly owed to its customers when providing investment recommendations or advice," the ruling states.
Galvin accused Robinhood in mid-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.
Galvin's office told ThinkAdvisor on Thursday that the judge ruled Wednesday "on the Secretary's authority to promulgate the rule as it exists, which obviously could have impacts on the administrative case if the ruling stands. There are aspects of the administrative case unrelated to the fiduciary rule. There are also charges in the administrative complaint relating to failure to supervise."
Kitces, head of planning strategy at Buckingham Wealth Partners and co-founder of XY Planning Network, noted in a lengthy response on Twitter Thursday that Galvin may have erred in pursuing a fiduciary-related enforcement action related to "Robinhood's 'gamified' brokerage app" — which has now ultimately led to the state's fiduciary rule being struck down.
"At its core, the debate for more than a decade now is when the advice of a broker-dealer should be regulated AS advice, rather than as a sales recommendation, because we regulate advice at a much higher (fiduciary) standard," Kitces tweeted.
