It’s official. The Department of Labor’s controversial, Obama-era Fiduciary Rule is dead and gone. On June 21, the United States Court of Appeals for the Fifth Circuit issued its mandate certifying its March 15 split decision that vacated the Fiduciary Rule in its entirety. The majority ruled that the DOL exceeded its authority when it promulgated a new rule that required brokers to act in the best interests of their clients when giving retirement investment advice. The mandate did not mince words: “It is ordered and adjudged that the judgment of the District Court is reversed, and vacate the fiduciary rule in toto.” The Fifth Circuit also ordered the DOL to pay the costs on the appeal of the U.S Chamber of Commerce and several other interested industry groups and national associations.
The mandate should have issued on May 7 but was delayed as the AARP and the States of New York, California, and Oregon filed eleventh-hour motions to intervene requesting leave to file a petition for rehearing en banc. The Fifth Circuit denied those motions and a consolidated motion for reconsideration. As a result, the DOL had until June 13 to appeal the decision to the Supreme Court. It did not, and the rest is history.
The DOL’s prior five-part test on when a person who provides investment advice for a fee is considered a fiduciary under the Employee Retirement Income Security Act will remain in place. And the battle over a fiduciary standard for investment advice will now focus on the Securities and Exchange Commission’s current “best-interest” rule proposal. Although many industry stakeholders argued that the SEC always should have taken the lead in setting standards for brokers and other investment advisers, the debut of the SEC’s “best interest” standard was met with sharp criticism from all sides. It will likely face many of the same challenges that ultimately killed the Fiduciary Rule – the cost and complexity of implementation; concerns that it will limit investor choice; and confusion over how it will be enforced. The 90-day public comment period closed on August 7. The SEC should expect that advocates and opponents of a fiduciary standard will lobby hard and may even resort to litigation. In the meantime, investors and investment professionals must patiently wait for clear guidance.