USSC Review of Fiduciary Standard

Pursuant to the 2024 DOL standard, someone is classified as an investment advice fiduciary if: (1) they make an investment recommendation to a retirement investor, (2) the recommendation is provided for a fee or other compensation (including commissions), whether direct or indirect, and (3) the individual holds itself out as a trusted advisor by either stating that it is acting as a fiduciary under Title I or II of ERISA, or making the recommendation in a way that would indicate to a reasonable investor that it is acting as a trusted advisor making individualized recommendations based on the investor's best interests.  An existing injunction applies to both the investment advice fiduciary standard and amendments to PTE 84-24, and PTE 2020-02. Until further court action occurs, the standard will not be effective, and the 1975 “five-part test” will remain in place. The Fifth Circuit historically sides with plaintiffs who advocate for looser regulatory schemes in the investment advice arena. Many now believe that the issue will ultimately be decided by the United States Supreme Court if the current DOL decides to appeal the matter.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether the U.S. Supreme Court is likely to uphold the Biden-era DOL investment advice fiduciary standard.

Below is a summary of the debate that ensued between the two professors.

Their Votes:





Their Reasons:

Bloink: We cannot overlook the fact that two well-respected federal judges have now come out in support of the DOL's Biden-era fiduciary standard. Both the Head Judge of the Northern District of Texas, Judge Barbara Lynn, and Head Judge of the Fifth Circuit, Judge Carl E. Stewart have come out in support of the 2024 DOL standard. Yes, a new administration has clearly taken over. That doesn't mean the new head of the DOL should, or would, be able to overlook fiduciary obligations and the importance of this clear and protective standard to help secure investor confidence.

Byrnes: The Supreme Court will absolutely vote to strike down the Biden-era fiduciary standard. The new rule simply mimics the Obama-era rule, which has already been struck down. It’s extremely unlikely that the conservative-leaning justices are going to permit such a broad and sweeping fiduciary standard to apply on a nationwide basis. It’s common sense that one-off investment advice transactions simply don’t create a relationship of trust and confidence between advisor and advisee.

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Bloink: We should all agree that strong investor protections are especially important in light of the current turbulence in the equity markets, which has many investors questioning whether they should even remain invested. Investors should be entitled to expect that their advisors will be looking out for their best interests, rather than the advisor’s own financial gain. That’s true even in situations involving one-time rollover advice, which is often some of the most important advice that clients ever receive.

Byrnes: The rule is a massive expansion of the ERISA fiduciary standard that’s extremely unlikely to stand in its current form. We simply can't have a rule where one-time advice is going to generate fiduciary liability. The U.S. Supreme Court will recognize that fact and strike down this overly broad regulation.

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Bloink: The federal judges in Texas who have come out in support of the 2024 DOL standard realize that the 5th Circuit is not going to agree with them--and so those judges have addressed the arguments that the 5th Circuit is expected to raise in order to once again denigrate the fiduciary standard. The arguments are well-reasoned, and it will be difficult for the Supreme Court to overlook them even in light of a 5th Circuit ruling against the DOL's latest rule.

Byrnes: As it stands, the Biden-era fiduciary standard is not the law of the land. The current DOL is not going to pursue the appeals when it’s clear that the U.S. Supreme Court would strike down the rule. In reality, the DOL is going to have to recognize that a standard where one-time investment advice creates fiduciary liability is not going to be upheld.