The U.S. Appeals Court for the 5th Circuit on Thursday issued its long-awaited, and much-anticipated, order vacating the Labor Department’s fiduciary rule.
In the court’s 70-page order, the judges said that the stated purpose of Labor’s rule “is to regulate in an entirely new way hundreds of thousands of financial service providers and insurance companies in the trillion-dollar markets for ERISA plans and individual retirement accounts.”
The court cited groups’ objections on “multiple grounds” to Labor’s fiduciary rule, including the rule’s inconsistency with the governing statutes; DOL’s overreaching to regulate services and providers beyond its authority; DOL’s imposition of legally unauthorized contract terms to enforce the new regulations as well as First Amendment violations; and the rule’s arbitrary and capricious treatment of variable and fixed indexed annuities.
“Finding merit in several of these objections, we VACATE the Rule,” the court wrote.
The Department of Justice did not petition the Supreme Court on June 15 to challenge the U.S. Court of Appeals for the 5th Circuit’s decision to vacate Labor’s fiduciary rule. Industry officials said then that the DOJ’s decison, while not surprising, further signaled the rule’s demise.
The American Council of Life Insurers and the National Association of Insurance and Financial Advisors pressed the U.S. Court of Appeals for the 5th Circuit on June 6 to issue the mandate to vacate the Department of Labor’s fiduciary rule “expeditiously,” as the rule remains in effect and is causing compliance uncertainty.
The 5th Circuit had said that its mandate vacating Labor’s rule would be issued on May 7.
Kevin Mayeux, CEO for the National Association of Insurance and Financial Advisors, said in a Wednesday statement that the Fifth Circuit mandate “puts the DOL fiduciary rule to rest once and for all. Advisors can now confidently move forward, helping their clients prepare for retirement without the shadow of the rule looming over them.”
The court’s decision, Mayeux added, “does away with restrictions that had placed unnecessary barriers between advisors and their clients and would have made it more difficult for people of moderate or modest means to get help with retirement planning and preparation.”
Attorney Brendan McGarry with Kaufman Dolowich & Voluck, added that with the DOL rule vacated, ”this focuses the issues regarding standards applicable to broker/dealers and other investment advice providers squarely on the SEC’s current rule proposals.”
It remains to be seen, McGarry added, whether Labor “will go back to the drawing board another time, wait to see what the final SEC rules look like, or both.”
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