On June 21, 2018, the United States Court of Appeals for the Fifth Circuit issued an order officially vacating the DOL's Fiduciary Rule. This action comes after the government failed to file an appeal (with the Fifth Circuit or the US Supreme Court) in the U.S. Chamber of Commerce v. DOL case. As a reminder, we discussed this case in the March 20, 2018 edition of Compliance Corner.
The fact that the Rule has been vacated means that the prior five-part test that was used to determine if an investment adviser was a fiduciary is back in place. Specifically, the original regulations identified investment fiduciaries using a test in which the fiduciary:
- Renders advice as to the value of securities
- Does so on a regular basis
- Renders advice pursuant to a mutual agreement
- Gives advice which serves as the primary basis for investment decisions
- Provides individualized advice
It's also possible that the DOL could choose to promulgate new rules. While they have issued a non-enforcement policy for any financial institutions that have relied on the Best Interest Contract (BIC) Exemption and other Rule-related prohibited transaction exemptions (PTEs), the DOL has acknowledged that the Rule being vacated has resulted in a compliance gap that might need to be overcome by new regulations. In other words, investment advisers that are making conflicted investment advice will still need a way to comply with ERISA, even though the Rule and its PTEs have gone away. Until the DOL proposes new rules, advisers who rely on the BIC or other PTEs will be safe from DOL enforcement.
Keep in mind, also, that the SEC has now presented its own rule and some states have even proposed regulations that would mirror the Rule. So it seems clear that the Rule will still affect the retirement industry in some ways.
Although this order seems to end a years-long journey that saw the creation and ultimate demise of this Rule, we will continue to follow any developments concerning the fiduciary status of investment advisers and employer plan sponsors who provide retirement plans.
Fiduciary Rule Vacated »