When Mark Twain learned that a newspaper had mistakenly printed his obituary, he reportedly responded by saying “Reports of my death are greatly exaggerated.” We could say the same about the Department of Labor’s Fiduciary Rule (the Rule), although it may be on life support. It really is too soon to conclude (regardless of what some commentators are saying) that the recent Fifth Circuit Court of Appeals’ decision invalidating the Rule sounds its death knell.
A two-judge majority on the Fifth Circuit Court of Appeals (the Court) recently found the Rule problematic in two important ways. First, according to the judges, the Rule conflicts with language in ERISA; and second, the Rule failed to adhere to the Administrative Procedures Act. As a result, the Court invalidated the Rule, placing it at odds with prior decisions rendered by other courts – and making it increasingly likely that U.S. Supreme Court will render the ultimate decision on the issue. In the meantime, the Rule in its current form remains in effect until May 7, 2018.
Regardless of the Rule’s fate, it is, in many ways, too late to turn back the clock. The Securities and Exchange Commission is reportedly working on its own initiative with respect to fiduciary duties and standards, and fiduciary responsibility remains on the industry’s radar. Brokers and vendors who began operating under a fiduciary standard in preparation for the Rule will not find it so easy to tell clients that they may no longer be willing to act as fiduciaries should the Rule fail to survive. The DOL itself is reviewing the Rule and may propose different standards in place of the current ones. Some states are even showing a willingness to tackle the issue to the extent permitted under federal law.
One way or another, the investment landscape has been changed by this exercise, as higher standards of conduct are already in effect. Employer-sponsors, as well as plan participants, will be well-served to continue retaining the services of advisors who are held to a fiduciary standard, regardless of what the law will ultimately require.