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March 15, 2018 at 06:32 PM
The U.S. Court of Appeals for the 5th Circuit voted 2-1 Thursday to vacate the Labor Department’s fiduciary rule.
The nine plaintiffs in the 5th Circuit case included the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association and the Financial Services Institute.
The ruling comes one day after Labor won a case in federal court brought against its fiduciary rule by Market Synergy Group, an insurance distributor.
The appeals court struck down the entirety of the fiduciary rule.
Labor’s next move is to decide whether to ask the full appeals court to rehear the dispute, or take the case to the U.S. Supreme Court.
The U.S. Court of Appeals for the D.C. Circuit still has an active case. That court will not be bound by how the 5th Circuit ruled.
(Related: SEC Fiduciary Rule Likely to Address Broker, Advisor Titles: Peirce)
In a joint statement, FSI, SIFMA and Chamber said that “the court has ruled on the side of America’s retirement savers, preserving access to affordable financial advice. Our organizations have long supported the development of a best interest standard of care and the Securities and Exchange Commission should now take the lead on a clear, consistent, and workable standard that does not limit choice for investors.”
According to the 5th Circuit ruling, Labor’s “new definition dispenses with the ‘regular basis’ and ‘primary basis’ criteria used in the regulation for the past 40 years. Consequently, it encompasses virtually all financial and insurance professionals who do business with ERISA plans and IRA holders. Stockbrokers and insurance salespeople, for instance, are exposed to regulations including the prohibited transaction rules. The newcomers are thus barred, without an exemption, from being paid whatever transaction-based commissions and brokerage fees have been standard in their industry segments because those types of compensation are now deemed a conflict of interest.”
Judge Says Rule Has ‘Woke’ Financial Services
Judge Edith Jones, who wrote the decision for the majority, stated that “DOL has made no secret of its intent to transform the trillion-dollar market for IRA investments, annuities and insurance products, and to regulate in a new way the thousands of people and organizations working in that market.”
Large portions of the financial services and insurance industries, Jones wrote, “have been ‘woke’ by the Fiduciary Rule and BIC Exemption. DOL utilized two transformative devices: it reinterpreted the 40-year-old term ‘investment advice fiduciary’ and exploited an exemption provision into a comprehensive regulatory framework.”
