Just in Time for Halloween, DOL Fiduciary Rule May Return from the Dead
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Just when we thought the Department of Labor’s (“DOL”) Fiduciary Standard Rule was officially dead, comes word that the Department may be taking another run at a Rule.

First, a review of the Rule’s history. The DOL in April 2016 approved a Fiduciary Standard Rule for those providing investment advice in connection with retirement accounts. The regulation allowed for use of a Best Interest Contract Exemption (“BIC”) with investors containing a predispute arbitration agreement, but class action waivers were not permitted. 

Not so Fast

President Trump in February 2017 ordered the Secretary of Labor to undertake a review of the Rule, that had been scheduled to go into effect in phases starting April 2017. DOL announced that it was delaying for 60 days the Rule’s implementation. Thus, the first phase of the Fiduciary Standard Rule went into effect starting June 2017 and a second phase was to be implemented January 2018. DOL later filed a proposal to delay until July 2019 the planned January 2018 implementation of Phase II of the Rule. The delay became official November 2017 when a Notice was published in the Federal Register. Meanwhile, the SEC moved ahead with its own regulation.

The Fifth Circuit Kills the Rule

In Chamber of Commerce of the United States v. Department of Labor, 885 F.3d 360 (5th Cir. Mar. 15, 2018), a split Court vacated in its entirety the Department’s Rule. Then, the Fifth Circuit on May 2 unanimously denied motions by California, New York, and Oregon and AARP to intervene and seek en banc review. Thereafter, the three States on May 16th filed a Motion for Reconsideration or in the alternative permission to petition for en banc review. On May 22nd the Panel ruled 2-1 to deny both requests. The DOL’s time to Petition for Certiorari expired June 13th, and on June 21st the Fifth Circuit issued a Mandate, providing: “It is ordered and adjudged that the judgment of the District Court is reversed, and vacate the Fiduciary Rule in toto.” The Rule was officially dead. Or was it? 

It’s Baaack

The DOL on October 18 issued its updated Regulatory Agenda that includes an item (RIN: 1210-AB82) on the now-defunct Rule with this description: “On April 8, 2016, the Department replaced the 1975 regulation with a new regulatory definition [of fiduciary]. The new regulatory definition was vacated in toto in Chamber of Commerce v. Department of Labor…. The Department is considering regulatory options in light of the Fifth Circuit opinion.” DOL projects a final rule by September 2019. 

Our Take: SEC and DOL Coordination is Coming

Recall that the SEC is indeed moving ahead with its own Rule, as authorized by Dodd-Frank section 913(g)(1). Specifically, the SEC published in the Federal Register on May 9th three proposals to establish a uniform fiduciary standard: Regulation Best Interests, Vol. 83, No. 90, Page 21574 (17 CFR Part 240); Standard of Conduct for Investment Advisers, Vol. 83, No. 90, Page 21203 (17 CFR Part 275); and Form CRS Relationship Summary and Form ADV, Vol. 83, No. 90, Page 21416 (17 CFR Parts 240, 249, 275 and 279). Publication triggered a 90-day public comment period for all three that expired August 7th (see SAA 2018-31 (Aug. 15) for our analysis of the thousands of comments received). Our guess is that the two agencies will coordinate their efforts.

(ed: Time will tell!)

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