The fate of the Department of Labor’s fiduciary rule is finally sealed once and for all. The Fifth Circuit Court of Appeals yesterday issued a mandate — a formality most observers expected to happen in early May — confirming its March decision to vacate the Obama-era regulation that purported to require retirement account advisors to put clients’ interests first and went into only partial effect last summer.
In its 70-page issued judgment making official its March 15 decision, the Fifth Circuit said it considered several objections to the rule brought by three business groups headed by the U.S. Chamber of Commerce, the American Council of Life Insurers, and the Indexed Annuity Leadership Council, whose attempt to vacate the rule in district court in the Northern District of Texas was unsuccessful last year.
The trade groups claimed the rule was inconsistent with existing regulations and violated the First Amendment, and that the DOL went beyond its authority, among other grievances.
“Finding merit in several of these objections, we vacate the Rule,” the Fifth Circuit wrote in its order.
The court also ordered the DOL to cover the costs of the groups’ appeal, according to the Fifth Circuity’s document.
The court was expected to issue the mandate as a mere formality over a month ago, which would have put an end to the Obama-era regulation, according to InsuranceNewsNet. The court had already dismissed appeals for an en banc review, which would have required all of its 15 judges to rehear the case, according to the web publication. Even the DOL missed its deadline earlier this month to appeal to the Supreme Court to save the rule.
But one of the judges on the Fifth Circuit was likely lobbying for a full-court review, holding up the mandate, William Jay, head of the litigation department in the Washington office of Goodwin, told InsuranceNewsNet before the court’s ultimate announcement.
With that no longer the case, opinion about the end of the DOL’s fiduciary rule is split, according to CNBC.
"We are pleased the Fifth Circuit today issued its mandate," Sifma president and CEO Kenneth Bentsen, Jr., says in a prepared statement cited by the news website. "The SEC, not the DOL, is the appropriate regulator in this area, and we look forward to working with the SEC on the current proposed rule-making to establish a best interest standard across all accounts, and not just retirement accounts."
The SEC is working on its own version of a best-interest standard that would apply to both broker-dealers and registered investment advisors. Others were less enthusiastic about the Fifth Circuit’s death knoll for the rule.
"It’s clear consumers are on their own," Knut Rostad, president of the Institute for the Fiduciary Standard, tells CNBC.
The fate of the DOL itself was thrown into limbo yesterday when the White House proposed merging the agency with the Department of Education, as part of the what officials in president Donald Trump’s administration call one of the most significant government overhauls since the Great Depression, according to Reuters. And White House budget director Mick Mulvaney said the administration could use an executive action to begin the process, although he said it would need support from Congress, according to Reuters.
As the fate of the DOL’s fiduciary rule was receiving its final obituary from the Fifth Circuit, SEC chairman Jay Clayton assured lawmakers the SEC’s best-interest regulation will be tough on broker-dealers, InsuranceNewsNet writes. Responding to Rep. Maxine Waters, R-Calif., at a House Financial Services Committee hearing yesterday, Clayton said, “that’s what we’re going to do in the broker-dealer space. You as the broker-dealer can’t put your interests ahead of the customer,” according to the web publication. Clayton also alluded to at least the possibility that the deadline for the SEC’s proposal, currently set for Aug. 7, could be extended, InsuranceNewsNet writes.
“I’ll see in August," Clayton said. "This issue has been around for 10 years. People have been heard."
Some in the industry, meanwhile, are wasting no time in reacting to the demise of the DOL’s fiduciary rule. In May, JPMorgan executives told their brokers the company would lift restrictions on commission-based retirement accounts, which had been put in place in light of the DOL’s rule, if the rule were to be officially killed, according to AdvisorHub.
“Today, the U.S. Court of Appeal for the Fifth Circuit officially issued a mandate vacating the Department of Labor’s Conflict of Interest rule,” JPMorgan CEO Chris Harvey wrote in a memo to the firm’s brokers on Thursday afternoon. “Effective tomorrow, June 22, we are making changes to our retirement operating model.”