DOL Rule To Be Erased From the Federal Register?

On March 15, 2018, the U.S. Court of Appeals for the Fifth Circuit (the “Fifth Circuit”) issued a decision vacating the Department of Labor (“DOL”) Fiduciary Rule (the “Rule”), the controversial measure requiring brokers and other financial professionals to adopt a “best interest” standard for their clients with respect to the Employee Retirement Income Security Act (“ERISA”) or Individual Retirement Accounts (“IRA”). Opponents of the Rule raised concerns that the Rule would have unintended collateral effects that would render investment and retirement services more costly and potentially inaccessible for certain individuals. The Fifth Circuit’s decision provided a greater impetus for the United States Securities and Exchange Commission (“SEC”) to adopt its own rule. At a recent SIFMA compliance and legal seminar in Orlando, Florida, SEC Chairman Jay Clayton, said that the SEC had been forging ahead with drafting its own fiduciary regulation on this issue, despite the doubt now surrounding the Rule’s fate. The SEC rule is expected as early as this summer.

The Rule was put into law by the DOL in April 2016 and sought to redefine how brokers and registered investment advisers serve consumers with IRAs and ERISA plans. The Rule created a more robust fiduciary duty for these financial professionals and required them to act in the “best interest” of their clients and to document their efforts regarding the Rule. This “best interest” standard is a significant departure from the prior standard, which required registered representatives and investment adviser representatives to recommend investments that were “suitable” for their clients.

On May 7, 2018, the Fifth Circuit is scheduled to issue a final order under the Federal Rules of Appellate Procedure which will effectively erase the fiduciary rule from the Federal Register unless the U.S. Supreme Court decides to address the Fifth Circuit’s decision that the DOL’s actions were arbitrary and capricious.

If you have any questions about this Alert, please contact Daniel G. Viola at 212.573.8038 or dviola@sglawyers.com.