While June 13 was widely cited as the last day the Department of Labor (DOL) could appeal to the U.S. Supreme Court the 5th Circuit’s ruling vacating the fiduciary rule, that day has now come – and gone.
So now the prevailing wisdom is that the DOL fiduciary rule, as it largely existed, is now dead and the old five-part test from 1975 comes back to life, which could be problematic for firms already operating under the new rule which had been in place for nearly a year.
It doesn’t come as a surprise that the DOL did not seek a review by the high court. AARP and three states had attempted in separate motions to intervene in the litigation, citing the DOL’s lack of action to appeal the case, but those efforts were soundly rejected.
In the wake of that decision by the Fifth Circuit, the DOL on May 7 issued Field Assistance Bulletin 2018-02 announcing that it was extending until further notice its temporary enforcement policy relating to its rule defining who is a fiduciary and the associated prohibited transaction exemptions. At the time, the DOL explained that, based on questions regarding fiduciary obligations in the aftermath of the March 15 ruling by the 5th Circuit, it had concluded that financial institutions should be permitted to continue relying on its temporary enforcement policy, pending the issuance of additional guidance.
The FAB advised that investment advice fiduciaries may rely on other available exemptions to the extent applicable after the 5th Circuit’s decision, such that the DOL “will not treat an adviser’s failure to rely upon such other exemptions as resulting in a violation of the prohibited transaction rules if the adviser meets the terms of this enforcement policy.”
At that time, the DOL also noted that it was evaluating the need for other temporary or permanent prohibited transaction relief for investment advice fiduciaries, including possible prospective and retroactive prohibited transaction relief.
While the 5th Circuit’s decision has the effect of eliminating the requirements of the fiduciary rule, it also does away with the BIC exemption, which provided a means for advisors to provide advice as an ERISA fiduciary and still receive commissions, also known as “conflicted” advice, in that it varies based on the advisor’s recommendation.
Meanwhile, the 5th Circuit still has not issued its “mandate” vacating the rule, which apparently was supposed to be done last month. To that end, the victorious plaintiffs in the 5th Circuit case recently asked the court to put the rule out of its collective “misery.” In a letter to the 5th Circuit, counsel for the plaintiffs noted that that court’s March 15 ruling vacating the fiduciary rule contained a docket entry noting that the mandate issue date would be May 7, 2018.
As if things weren’t interesting enough, about a month after the 5th Circuit’s decision, the Securities and Exchange Commission published its much-anticipated proposal to create a new fiduciary standard for advisors. Comments on the Regulation Best Interest, Form CRS Relationship Summary and the proposed interpretation regarding standards of conduct for investment advisers are requested by August 7.
The SEC Investor Advisory Committee was scheduled to hold a meeting in Atlanta June 14 to review the agency’s proposals.