Yes, this is normal expected behavior. Auto-enter Modification date is for the table in which that field exists only.
You could set a script trigger, rather than an auto-entered mod date, having the script set the date of the max value of the current record and any of his child records as the record in commited. This is often much more what the user expects, but it takes some work by the developer.
You may even need a Commit Record script step with flush cache, a short pause and then test for the largest date in the record/related-records set to use in updating your custom modDate field.