In June 2018, the US Court of Appeals for the Fifth Circuit officially ordered the US Department of Labor (DOL) to vacate the so-called DOL Fiduciary Rule—the name generally used to refer to the 2016 amendment to the definition of fiduciary “investment advice” under ERISA and Internal Revenue Code Section 4975—and its related exemptions. As a result of this order and the DOL’s decision not to appeal, the DOL Fiduciary Rule is regarded as effectively repealed, leaving just the formality of removing it from the Code of Federal Regulations. But the rule continues to influence developments not only in the retirement area, but also beyond.

In the retirement area itself, the rule is still present in the following ways:

  • The relief granted under the two new class exemptions (Best Interest Contract Exemption and Principal Transactions Exemption), which were vacated along with the rule itself, can still be relied upon pursuant to a DOL (and follow-on IRS) nonenforcement policy, subject to complying with the so-called “impartial conduct standards.” The nonenforcement policy has no official end date.
  • The DOL indicated in its most recent regulatory agenda that it intends to take regulatory action in conjunction with the “best interest” rule currently pending at the US Securities and Exchange Commission (SEC). It is unclear at this time what the nature of that action will be.

In addition, the DOL Fiduciary Rule influenced many practices with regard to IRA rollovers. Several firms are continuing a number of these practices, in part because the changes were already in place and effective by the time of the Fifth Circuit decision.

Meanwhile, the courts are again applying the so-called “five-part test” for fiduciary investment advice, as illustrated by a decision just this week finding that a firm was not an “investment advice” fiduciary because it had no “mutual agreement, arrangement or understanding” to provide individualized advice to the plan in question, and because its employees did not provide advice on a “regular basis.”

Apart from the retirement area, there are two other developments influenced at least in part by the DOL Fiduciary Rule:

  • The SEC’s “best interest” rule for broker-dealers, proposed in mid-2018, is expected to be finalized by the end of 2019. While not using the term “fiduciary,” the proposal would adopt a number of concepts used in the DOL Fiduciary Rule, including the “best interest” standard; conflict disclosure, mitigation, and elimination concepts; and a “neutral factors” analysis with regard to conflicts.
  • State fiduciary standards for broker-dealers and possibly investment advisers were purportedly motivated by the effective repeal of the DOL Fiduciary Rule. Nevada has adopted such a fiduciary law and recently proposed related regulations; other states, such as New Jersey and Maryland, have similar laws under consideration.

Neither of these developments is limited solely to retirement accounts, but rather would apply to all retail relationships.

So, as we approach what would have been the full effective date of the DOL Fiduciary Rule and related exemptions (July 1, 2019), the effects of the DOL Fiduciary Rule continue to be felt, both in current practice and in developing law at the federal and state levels. We continue to closely monitor these developments.