Attention ComplianceWorks Network 

In case you missed it, this is an interesting but not wholly surprising development in the evolution of a Fiduciary Rule.  I would agree the Rule as written was arbitrary and was very far reaching.  In fact so far reaching that I doubt the DOL understood all of the effect the Rule.  The court cited what was one of the major problems with the Rule (or any DOL rule that affects financial services firms), who is going to enforce it?  So, before everyone dances on the grave of the DOL Rule, the last sentence of this article is telling – the SEC and FINRA are likely to develop their own fiduciary rule.  Thus, it may go down in history that the DOL rule did change the nature of fiduciaries in the financial services industry, not directly but more as putting the issue front and center and providing the impetus for change.

ComplianceWorks Inc.


The Future is Looking Cloudy for the DOL’s Fiduciary Rule

In March, the Fifth Circuit of the U.S. Court of Appeals struck down the Department of Labor’s (DOL’s) Fiduciary Rule in its entirety. This follows closely on a decision from the Tenth Circuit just a week prior upholding the Rule. The Fifth Circuit concluded the Rule is arbitrary and capricious; that it is not authorized by ERISA and that the DOL exceeded its regulatory authority in promulgating this rule.

The essence of the Fiduciary Rule is that any person making investment recommendations to plans, their participants or IRA holders, is acting as a fiduciary and may only make recommendations that are in the “best interests of the client.” The rule is complex (the regulation is 176 pages) and has generated much controversy within the financial services industry.

As the result of an executive order issued by President Trump early last year, the Secretary of Labor already placed parts of the Fiduciary Rule on hold until the middle of next year. In view of this delay, now combined with the Fifth Circuit’s decision, it seems the Fiduciary Rule’s future is uncertain. A key question is how vigorously the DOL will defend the Rule. The Trump Administration’s priority is withdrawing, rather than defending regulations. While there is no right of appeal in this case, the DOL could ask the Supreme Court to consider the matter on the basis there is now a split in the Court of Appeals. Under such circumstances, the Supreme Court will often grant a request to hear the case. Spokespersons for the DOL have refused to comment on how the Department intends to proceed.

The Securities & Exchange Commission has always led regulating the financial services industry. It has, on more than one occasion, stated it believes the DOL was stepping on its turf in promulgating the Fiduciary Rule. If the Rule falls by the wayside, it is probable that either the Securities & Exchange Commission or the Financial Services Regulatory Authority (FINRA) will issue a similar fiduciary standard of their own.