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March 16, 2018 at 11:26 AM
The U.S. Court of Appeals for the 5th Circuit’s Thursday ruling to strike down the Labor Department’s fiduciary rule has industry watchers divided on what it signals for the rule’s final implementation. Meanwhile, observers say, it will prompt the Securities and Exchange Commission to re-evaluate its fiduciary rulemaking.
(Related: DOL Fiduciary Rule Struck Down by Appeals Court)
Neil Simon, vice president of government affairs for the Investment Adviser Association, told ThinkAdvisor Friday morning during the group’s compliance conference in Washington that the 5th Circuit ruling “appears to be an extremely significant decision, and is likely to give pause to the SEC with regard to its own fiduciary rulemaking.”
The ruling, Simon said, appears to signal that full implementation of Labor’s rule is likely over.
With the court’s 2-1 decision to vacate the rule, Labor’s fiduciary rule “now appears to be on life support,” added Greg Valliere, chief global strategist for Horizon Investments, in his Friday morning Capitol Notes.
“The anti-regulation Trump administration has been reviewing the Obama-era changes to financial advice and retirement plans,” Valliere said, noting the delay in full implementation of the rule until June 2019.
As it stands now, the rule will likely be “in limbo for the foreseeable future” and may eventually wind up in the Supreme Court, “or the Fifth Circuit could instruct all of its judges to review it,” Valliere continued.
Another option: Labor could “accept the ruling, which then would begin a lengthy process of rewriting (and softening) it,” perhaps with input from the SEC.
The “original” Labor Department fiduciary plan “will never be fully implemented,” Valliere opined. ”Its legacy may be that while it burdened small firms, it has prompted tougher self-regulation by the industry as a whole.”
But Erin Sweeney, an attorney with Miller & Chavalier in Washington, said that “the decision is unlikely to derail or even slow down” Labor’s revision process.
Why? ”Because of the uncertainty of the two decisions issued within two days, one from the 10th Circuit upholding a portion of the regulation and the 5th Circuit decision vacating the regulation,” Sweeney opined.
The Labor Department on Tuesday won a case in federal court brought against its fiduciary rule by Market Synergy Group, an insurance distributor.
The U.S. Court of Appeals for the 10th Circuit ruled that Labor did not “arbitrarily treat fixed indexed annuities differently from fixed annuities” under its final fiduciary rule.
