The 5th Circuit Court of Appeals decision vacating the Labor Department’s fiduciary rule has spawned competing views among legal experts over whether the regulation is still in effect in some areas of the country.
Attorneys for Gibson Dunn, the law firm that argued before the 5th Circuit on behalf of the U.S. Chamber of Commerce and industry trade groups, have said that the ruling categorically removes the rule throughout the country.
“Because the effect of vacatur is, in essence, to remove a regulation from the books, its effect is nationwide,” wrote attorneys for Gibson Dunn in a client briefing.
But other experts have said the decision only applies in states under the 5th Circuit’s jurisdiction—Louisiana, Texas, and Mississippi.
The rule “remains in effect in the rest of the country,” wrote attorneys for the Wagner Law Group, basing that position of a ruling in the 10th Circuit Court of Appeals, which upheld the rule’s treatment of fixed indexed annuities.
While the Labor Department has said that it will not enforce the rule, “pending further review,” legal consultants to financial services providers and plan sponsors are advising clients to continue to comply with the rule’s impartial conduct standards, the component of the regulation that was implemented in June 2017.
“From where we’re sitting, we have to advise clients to keep focused on what you’re supposed to be doing until the rule is formally gone,” said Jason Roberts, CEO of the Pension Resource Institute.
PRI has already advised its clients to continue to comply with the impartial conduct standards, which require recommendations to retirement accounts to be in investors’ best interests, for the immediate future, Roberts told BenefitsPRO.
“If you continue to aspire for anti-conflict policies, you are going to lower your risk,” said Roberts.
While the Labor Department may not be enforcing the rule, private litigants and state regulators can still bring claims against brokers and advisors, noted Roberts.