Is the Fiduciary Rule Dead?
On March 15, 2018, the U.S. Court of Appeals for the Fifth Circuit struck down the controversial “Fiduciary Rule” in a decision by Judge Edith Jones that was none too subtle concerning its intended effect. The court noted that the Administrative Procedure Act requires a court to “hold unlawful and set aside agency action” that it determines is “arbitrary, capricious, … not in accordance with law” or not in accordance with statutory limitations. The opinion concluded with the words “we reverse the judgment of the district court and vacate the Fiduciary Rule in toto.”
The Fiduciary Rule was first proposed by the U.S. Department of Labor in 2010, and quickly met fierce resistance from the retirement industry. The Rule purported to jettison the Department’s decades-old definition of “investment advice fiduciary,” and to erect in its place a new and substantially expanded test that would subject a much broader range of financial services brokers and advisers to the fiduciary conduct rules of the Employee Retirement Income Security Act (ERISA). When the Fiduciary Rule was finally published in final form in April 2016, it was broadly expected to upend entire segments of the retirement industry, particularly impacting traditional forms of compensation such as commissions and the provision of advice pertaining to individual retirement accounts (IRAs).
Industry opponents of the Rule noted that Judge Jones’s decision was issued on the Ides of March, and happily proclaimed “Death to Tyrants!” And when the mysteriously delayed court mandate was finally issued, headlines proclaimed that it was at last official: The Fiduciary Rule was dead.
But is the Fiduciary Rule dead? A few days after the ruling, the Labor Department announced that “pending further review” it would “not be enforcing the 2016 fiduciary rule.” And in May 2018, the Department announced a “temporary enforcement policy” that promised “to provide appropriate guidance in the future.” The Labor Department stated that, in the meantime, it “will not pursue prohibited transactions claims against investment advice fiduciaries” to the extent such fiduciaries “are working diligently and in good faith to comply with the impartial conduct standards for transactions that would have been exempted.”