Fiduciary rule, we hardly knew ya. The death knell for the DOL’s amended rule appears to be sounding this week with the expected mandate from the Fifth Circuit effectuating the vacatur of the amended rule in the case of Chamber of Commerce v. U.S. Department of Labor.
Furthermore, on May 7, 2018, in Field Assistance Bulletin 2018-02, the Department of Labor referred to the mandate in a manner that may indicate that no further action to save the amended rule will be taken by the United States. If indeed there is no appeal to the Supreme Court by June 13, 2018, then - game over. Our discussions of how we got to where we are are collected on our Fiduciary Rule Resource Page.
So where do we go from here? Some observations:
The market was already trending towards a "best interest" approach even before the issuance of the DOL’s amended rule. It is by no means certain that this trend will reverse. Some may continue to embrace fiduciary status; some may gravitate more towards approaches that proliferated before the DOL's amended rule; and some may take middle-ground approaches. However, at a minimum, the details surrounding the manner in which a customer's best interest is pursued is likely to change based on the vacatur, at least for some providers, and the risks surrounding the provision of services to retirement accounts, including ERISA plans and individual retirement account, will generally diminish dramatically.
There is the possibility that investment choices available to retirement accounts will broaden, and that costs of services may decrease. It is also likely that many of those who had generally shied away from providing services to and engaging in transactions with retirement accounts will now again be willing to deal with those accounts.
Much of the action now turns to the SEC, which, spurred on by the DOL's activity, has now focused on similar issues for all accounts (not just retirement accounts). Our initial discussion of the SEC's "best interest" and related proposals may be found in our April 2018 Newsflash, SEC Proposes Rules Addressing Broker-Dealer and Investment Adviser Standards of Conduct. Presumably, the SEC will coordinate with the DOL in the context of retirement accounts. However, it is not clear that the SEC will be able successfully to build consensus that will lead to finalization of its "best interest" initiatives, being that (if the DOL's amended fiduciary rule is dead) it is no longer the case that a failure of the SEC to act will leave the market with the DOL's amended rule.
In FAB 2018-02, the DOL has indicated that those who proceed in reliance upon the DOL’s amended rule will not be whipsawed by enforcement efforts by the DOL (or the IRS).* There are still some theoretical issues that may surround possible private-action claims in connection with services provided to ERISA plans, but these are arguably quite manageable. (The situation is even more straightforward in the case of the management of IRA assets that are not subject to ERISA, as the only risk of enforcement there would have been from the IRS.) In terms of going forward in light of the vacating of the amended rule, the DOL has indicated that additional DOL (and IRS) guidance will be forthcoming.
It is worth noting that the dismantling of a number of Obama-era regulatory initiatives is coming not from the Trump administration, but rather from the courts. Another example of a stinging rebuke delivered by the courts is the D.C. Circuit's rejection of the extension of risk-retention rules to "collateralized loan obligation" funds in the LSTA v. SEC case decided in February 2018. (See our article relating to that case, DC Circuit Court Newsflash: “Transfer” means “Transfer”.)
It appears that providers and investors may now need to consider how to move forward in the brave old world of the pre-amended fiduciary rule. (To be clear, though, as indicated above, there will be some continuing uncertainty surrounding the viability of the amended rule until the time for requesting certiorari regarding the Chamber of Commerce case has expired.)