Uncertainty surrounding the Labor Department’s fiduciary rule continues after the U.S. Court of Appeals for the 5th Circuit voted in mid-March to nullify the 2016 rule. Labor said shortly after the appeals court ruling that because the 5th Circuit vacated the fiduciary rule in its entirety, “pending further review, the Department will not be enforcing the 2016 fiduciary rule.”
At the Securities Industry and Financial Markets Association’s annual compliance conference in mid-March, though, Securities and Exchange Commission Chairman Jay Clayton said the appeals court ruling won’t deter the securities regulator from moving full steam ahead with its own fiduciary rulemaking.
Seventy-two hours after the 5th Circuit Court of Appeals struck down Labor’s fiduciary rule, “It hasn’t affected the way I’m approaching this” SEC fiduciary rulemaking, said Clayton during a question-and-answer session at the conference, which took place in Orlando, Florida.
Ken Bentsen, president and CEO of SIFMA, queried Clayton if the agency would release a fiduciary proposal “soon.” Clayton responded: “Soon is fair. From my perspective, the sooner the better. I’m not sitting on this.”
Bentsen asked if the 5th Circuit decision would “affect [the SEC’s] timing” on releasing its own fiduciary rule. “I think there’s a lot going on there [in the ruling] for what it means for the Department of Labor,” Clayton replied. “I haven’t had any discussions with the Department of Labor on what it means from a broader perspective of administrative law and the approach to administrative law. We’ll see, but as far as I’m concerned, we’re moving forward.”
The U.S. Court of Appeals for the 5th Circuit voted 2-1 on March 15 to vacate the Labor Department’s fiduciary rule. The nine plaintiffs in the 5th Circuit case included the U.S. Chamber of Commerce, SIFMA and the Financial Services Institute.
The ruling came one day after Labor 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.
Kansas-based Market Synergy Group (MSG) had argued that Labor threw FIAs under the fiduciary rule’s best-interest contract exemption, or BICE, at the last minute.
“According to MSG, the DOL simply did not give notice that it might exclude FIAs from PTE 84-24 and therefore did not give adequate notice of the final rule,” the ruling states. “We are unpersuaded. The [notice of public comment and review] clearly asks for comment on whether removing variable annuities from PTE 84-24 but leaving FIAs and fixed rate annuities struck the appropriate balance.”
Dale Brown, president and CEO of the Financial Services Institute, said that while the appeals court’s decision “in our favor is critical because the rule would have pushed the cost of retirement advice and planning services out of the reach of many Main Street investors, our work is far from over.”
FSI, he said, is “now redoubling our efforts to support the SEC’s current push to create a uniform standard that protects investors and their full access to the advice, products and services they depend on to save for a dignified retirement, care for aging parents and educate their children.”
However, Micah Hauptman, financial services counsel for the Consumer Federation of America, said the 5th Circuit case “was wrongly decided. The industry opponents went forum shopping and finally found a court that was willing to buy in to their bogus arguments.”
The opinion, Hauptman added, “is extreme by any measure. It strikes at the essence of the DOL’s authority to protect retirement savers under ERISA. It’s not only an attack on the rule, it’s an attack on the agency.”
SEC Fiduciary Rule
At SIFMA’s mid-March compliance event, Clayton said a client’s relationship with his or her financial professional usually includes dealing with “at least five” regulators.