The Fifth Circuit officially vacated the Department of Labor (DOL) fiduciary rule as of June, 2018, although the opinion that spelled the rule’s demise was issued in March. As most know, the DOL fiduciary rule imposed a mandate upon most advisors that would have required them to act in the best interests of their clients, including disclosing any conflicts of interests that any given transaction may have created.
The rule also required many advisors to disclose their fiduciary status to clients, and to accept only reasonable compensation for advisory services relating to sales of certain financial products, recommendations regarding rollover transactions and retirement account investment decisions. At the firm level, the rule required financial firms to implement written policies and procedures designed to mitigate the impact of conflicts of interests.
We asked Professors Robert Bloink and William Byrnes, who are affiliated with ALM’s Tax Facts, and hold opposing political viewpoints, to share their opinions on the rise and fall of the DOL fiduciary rule.
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Below is a summary of the debate that ensued between the two professors.
Byrnes: The Fifth Circuit opinion echoed what everyone in the financial services industry has been saying about the rule since it was introduced. It was an incredible overreach by the DOL, and subjected an entirely new class of advisors to a heightened fiduciary standard with respect to clients that these advisors may have had minimal interaction with. Selling a single annuity product to a client should not mean that the advisor is now a fiduciary with respect to that client, which I believe was one of the court’s primary problems with the rule.
Bloink: The rule was broadly applicable, and that was its intent. Prior to the introduction of this rule, a myriad of different standards of care could have applied to an advisor based on often subjective criteria. Because of this, advisors and clients often were unclear as to the required duties of the advisor, meaning that a client was extremely unlikely to challenge an arrangement that may have been conflicted. Even more important, the client probably wasn’t even aware that conflicts of interest on the advisor side were an issue. The rule was designed to protect these clients, and maybe it needed fine-tuning, but vacating the rule entirely was not the ideal solution.