DOL Rule Struck Down in Court: Will Fiduciary Standards Prevail? In case you haven’t heard the news yet: late last week, the Fifth Circuit Court put the kibosh on the Department of Labor (DOL) fiduciary rule. According to the court, the rule “overreached” and was “unreasonable.”
Clearly, that stirs up a lot of uncertainty. The biggest questions likely on everyone’s minds now are: what does it all mean? and where do we go from here?
At the time of writing (Sunday, March 18, 2018), there are no definitive answers — yet. We just know the Fifth Circuit Court’s ruling definitely shakes things up. And more than likely, the industry will continue to be required to adhere to some form of fiduciary standards when it comes to investment advice. It’s just a matter of where those standards actually come from — whether it’s the DOL, the Securities and Exchange Commission (SEC), or elsewhere.
According to thisfrom MarketWatch, here’s what could happen:
Scenario A: The DOL could ask the Supreme Court to weigh in, especially since several courts have reviewed the fiduciary rule and have come to different conclusions.
Scenario B: It could ask the Fifth Circuit Court to reconsider its decision and review the rule again. In both Scenario A and B, the DOL could ask for a stay of the latest ruling.
Scenario C: The DOL could let the Fifth Circuit Court’s decision stand and create a new rule that addresses the court’s concerns.
The SEC is also crafting its own version of the fiduciary rule, which is expected to “require brokers to provide advice that puts the clients’ interests first while also requiring upfront disclosures regarding fees, services, and conflicts of interest,” according to MarketWatch. The SEC hopes to vote to propose its rule by the end of Q2 2018.
Clearly, though, just because the DOL version of the fiduciary rule may soon fade into the ether, that doesn’t mean the impacts of having a fiduciary standard will go with it. Many large players in the industry, including Bank of America Merrill Lynch, Fidelity, BlackRock, JPMorgan Chase and others have all made sizable investments to implement changes designed to better serve their clients and improve their investment decision-making through technology. The Fifth Circuit Court’s ruling has the potential to be appealed, so it’s unlikely that sweeping — and costly — changes like these will be reversed.
An interesting aside: a scroll through Twitter shows just how charged this issue is, both politically and otherwise. Here are a just a few of the comments that popped up over the weekend in a Twitter search for “DOL rule”:
Ron Rhoades, JD, CFP @140ltd wrote: “DOL fiduciary rule overturned in a split decision (2-1). But bona fide fiduciary advisers continue to win in the marketplace. In the end, fiduciary will prevail.”
MichaelKitces @MichaelKitces tweeted: “A dark day for consumers and real financial advisors. Not only for the overturning of the Fiduciary rule… also takes pressure off the SEC.”
James Watkins @InvestSense wrote: “5th Circuit rules against DOL rule sets up SCOTUS review. Industry celebration premature, as state fiduciary rules are bulletproof, legit exercise of their 10th Amendment police powers, including full discovery. If DOL rule struck down, even more states may act.”
Gary Moore @Phantomzoner replied to a tweet from Senator Elizabeth Warren: “@SenWarren The rule kicked small investors to the curb and limited investment choices. The DOL had no business getting into people’s IRAs and the Court correctly threw the rule out.”
What does the latest ruling on the DOL fiduciary rule mean for plan sponsors? As of today, not much. In other words, it’s business as usual. Until it isn’t.
The bottom line: continue to adhere to the stringent fiduciary standards you’ve become accustomed to as a plan sponsor, and keep putting your participants’ best interests front and center in every decision you make about your retirement plan. The fate of the DOL fiduciary rule is certainly an issue to keep a vigilant eye on. Of course, we’ll continue to keep you posted here on 401kTV as the situation evolves.
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