The Obama-era Fiduciary Rule, requiring retirement investment advisers to place their clients’ interests first, underwent a mixed week of results in U.S. circuit courts of appeals. A few days ago, the 10th Circuit Court affirmed the rule, and yesterday the 5th Circuit deemed it “arbitrary and capricious” and vacated the rule in toto.
The 5th Circuit’s opinion was a divided one, and the agency issuing the rule — the Department of Labor (DOL) — could seek a full-court opinion (known as en banc) or appeal to the Supreme Court to resolve the split in circuit court opinions.
“Pending further review, the department will not be enforcing the 2016 Fiduciary Rule,” a DOL spokesman told Bloomberg Law.
The Trump DOL this past year, in an early move, already delayed enforcement of the Fiduciary Rule and issued a request for comments as a preliminary step to rewrite or void the rule entirely.
Simply stated, the rule requires investment advisers to recommend retirement plans that benefit their customers most, rather than those instruments that pay them the highest commission, a somewhat common practice prior to the rule. In essence, the rule would do away with the commission structure entirely and require advisers to work on a fee-only basis.
The lawsuit was brought by three business groups, led by the U.S. Chamber of Commerce, and was rejected by a Dallas district court before the reversal yesterday by the 5th U.S. Circuit Court of Appeals based in New Orleans, considered the most conservative of all appeals courts.
The Consumer Federation of America slammed the decision: “This case was wrongly decided. The industry opponents went forum shopping and finally found a court that was willing to buy in to their bogus arguments. This is a sad day for retirement savers.”
The plaintiffs, however, were clearly pleased, issuing this statement: “The court has ruled on the side of America’s retirement savers, preserving access to affordable financial advice. Our organizations have long supported the development of a best interest standard of care and the Securities and Exchange Commission should now take the lead on a clear, consistent, and workable standard that does not limit choice for investors.”