The DOL’s expanded fiduciary advice rule has not had an easy life. In fact, it hasn’t really ever had a life and may never after the latest setback.
The Fifth Circuit Court of Appeals completely vacated the rule in a split decision announced late Thursday.
This new ruling came as a bit of a surprise after the district court upheld the rule just last year.
The DOL fiduciary rule, designed to expand the fiduciary advice requirement under the Employee Retirement Income Security Act to anyone providing investment advice for a fee to retirement savings accounts, now faces an uncertain future. It is possible that the DOL appeals the decision, but it is not clear what will happen next.
According to Peter Gulia, attorney and fiduciary expert, “the likelihood that the court might grant rehearing, perhaps by all 15 active judges of the Fifth Circuit, is greater than usual because there is at least some tension between the Fifth Circuit panel’s decision and a Tenth Circuit panel’s decision upholding the fiduciary rule[.]”
Mr. Gulia also notes that the potential split among appellate courts would also “strengthen arguments for review in the Supreme Court.”
President Trump has been outspoken about repealing the rule and ordered the DOL to review the rule last year. The DOL has since followed suit, suspending parts of the rule and taking steps to engage in further rulemaking to revise the rule. However, with the court completely scrapping the rule, the DOL now needs to weigh its options and decide if expanding fiduciary advice is still a priority.
However, the DOL could still challenge the court’s decision even if the new Administration wants to scrap the fiduciary rule.
This is because the court’s decision could be viewed as a serious curtailing of the regulatory authority of the DOL in its rule-making authority moving forward.
As such, leaving the court’s decision alone could impact the DOL’s ability to promulgate rules moving forward.
The rule-making was called “unreasonable” and exceeded the DOL’s statutory authority.
This is one of the biggest and most impactful court decisions regarding ERISA in years, not just for the fiduciary rule, but for the DOL’s ERISA rule-making authority in general.
The fiduciary discussion will not end here. States have been proposing their own fiduciary rules for financial advisors over the past few years. This trend could continue and even be accelerated now that the federal rule is gone.
Additionally, the SEC has been considering and working on its own fiduciary rule for almost a decade now.
Many experts say the SEC may release a proposed fiduciary rule for financial advisors over the next 12 months.
The SEC rule would likely supersede the DOL’s fiduciary rule in some areas and achieve many of the same outcomes that were envisioned by the DOL when it created its rule.
If the SEC does release a rule this year, don’t expect a quick end to the discussion or process then either. It has been roughly eight years since the DOL rule was first proposed, and full implementation was not set for another few years, even before the recent setback.
So even with a proposed SEC rule in 2018, it could be years before anything is actually implemented as it will also have to go through a full rulemaking process and will also be challenged in court.
The future of fiduciary financial advice remains as big of a mystery as ever. The DOL rule has been all but wiped out by the recent court ruling, an SEC rule appears years away from implementation, and the effectiveness of laws at the state level are unclear.
In the end, the fiduciary saga continues and won’t likely be settled anytime soon.
