On June 21, 2018, the Fifth Circuit Court of Appeals issued a mandate vacating the U.S. Department of Labor's ERISA Fiduciary Rule, thus ending years of speculation regarding the rule's future. Effective immediately, the Fiduciary Rule, which largely became effective on June 9, 2017, is no longer applicable. Instead, the prior five-part test (more fully described below) will once again be relied upon for determining fiduciary status in the investment advice context. Please see our previous Client Memoranda, “U.S. DOL Releases Final ERISA Fiduciary Rule” and “ERISA Fiduciary Rule: Some Quick Action Items” for further background regarding the Fiduciary Rule.
Discussion of Law
Following the Fifth Circuit’s mandate, the DOL’s 1975 regulation once again applies for purposes of determining whether a person is providing fiduciary investment advice when communicating with ERISA plans and IRAs. As noted in our October 2010 Client Memorandum, “DOL Proposes Significant Expansion of ERISA ‘Fiduciary’ Definition in the Investment Advice Context,” under the 1975 regulation, a person who provides investment advice to an ERISA client for a fee is not considered an ERISA fiduciary unless each of the following five elements is satisfied: (1) the person must render advice as to the value of securities or other property or the advisability of investing in, purchasing or selling securities or other property, (2) on a regular basis, (3) pursuant to a mutual understanding with the ERISA client, that (4) the advice will serve as a primary basis for the ERISA client’s investment decisions and that (5) the advice will be individualized based on the needs of the ERISA client.
- Revisions to Documents. Asset managers who revised subscription documents, placement agent agreements, marketing materials and other documents to take advantage of the Fiduciary Rule’s “Independent Fiduciary Exception” may begin removing that language from those documents when convenient. There is no need for asset managers to contact ERISA clients regarding the change in law or to update subscription and other documents immediately.
- Investment by IRAs and Other Non-Institutional ERISA Clients. Asset managers who suspended investment by IRAs and other ERISA clients that were unable to meet the requirements of the Independent Fiduciary Exception may now admit those investors to applicable products, to the extent any such investors would have been admitted prior to June 9, 2017.