The Fifth Circuit Court of Appeals struck down the Department of Labor’s fiduciary rule on Thursday, sending shock waves throughout the investment and retirement savings industries.
The court, citing arguments made by plaintiffs groups—including the U.S. Chamber of Commerce, Financial Services Institute, and the Financial Services Roundtable, among others—said in its opinion that “…we REVERSE the judgment of the district court and VACATE the Fiduciary Rule in toto.”
“As might be expected by a Rule that fundamentally transforms over fifty years of settled and hitherto legal practices …a full explanation of the relevant background is required.” the judges wrote before launching into a comprehensive explanation of just that, beginning with a Congressional passage of ERISA’s in 1974.
In its 2 -1 decision, the court said, “The stated purpose of the new rules is to regulate in an entirely new way hundreds of thousands of financial service providers and insurance companies in the trillion dollar markets for ERISA plans and IRAs.”
Citing precedence set in a separate case, Chevron U.S.A., Inc. v. Natural Resources Defense Council, Circuit Judge Edith Jones called it a “regulatory abuse of power” that stemmed from a discovery the DOL supposedly made in “a long-extant statute” that implied or indicated “an unheralded power to regulate a significant portion of the American economy.”
The fiduciary rule, officially known as the Department of Labor’s Conflict of Interest Rule, has occupied industry advocates and opponents since its reintroduction in April 2016 under Phyllis Borzi and the DOL’s Employee Benefits Security Administration.
Most recently, and as part of the Trump Administration’s regulatory rollback overall, the Department of Labor under Labor Secretary Alexander Acosta and new EBSA Assistant Secretary Preston Rutledge delayed the rule’s full implementation until July 1, 2019.
The SEC is currently working on its own version of a fiduciary standard.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
