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DOL Fiduciary Rule
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Court of Appeals Vacates DOL Fiduciary Rule

The Fifth Circuit Court of Appeals argues the Department of Labor lacked the statutory authority to promulgate the rule; a major victory for the brokerage industry.

The U.S. Court of Appeals for the Fifth Circuit has struck down the Department of Labor’s fiduciary rule, agreeing with the plaintiffs that the department overstepped its statutory boundaries, according to documents filed Thursday.

The nine plaintiffs, including the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association, the Financial Services Institute, Financial Services Roundtable and Insured Retirement Institute, filed the appeal in February 2017 after a federal court judge in Texas upheld the fiduciary rule.


“The court has ruled on the side of America’s retirement savers, preserving access to affordable financial advice,” the plaintiffs said in a statement. “Our organizations have long supported the development of a best interest standard of care and the Securities and Exchange Commission should now take the lead on a clear, consistent, and workable standard that does not limit choice for investors.”

Investor advocacy groups were not happy with the decision.

“This decision is also a slap in the face to the dedicated and hardworking public servants at the DOL who labored for more than five years conducting rigorous analysis and outreach to all affected groups, including most prominently industry, who insisted on—and received—unprecedented access and input,” said Stephen W. Hall, legal director and securities specialist for Better Markets. “The end product of that process was a rule that served the American well while allowing broker-dealers, insurance agents, and other advisers ample opportunity to preserve their business models.” 

The Court said it agreed with several of the plaintiffs’ objections to the rule, which included its inconsistency with existing rules; the department’s overstepping its boundaries; its imposition of legally unauthorized contract terms to enforce the rule; violations of the right to free speech; and its fickle treatment of variable and fixed indexed annuities.

“DOL has no such statutory warrant, but far from confining the Fiduciary Rule to IRA investors’ transactions, DOL’s regulations affect dramatic industry-wide changes because it’s impractical to separate IRA transactions from non-IRA securities advice and brokerage,” the court decision says. “Rather than infringing on SEC turf, DOL ought to have deferred to Congress’s very specific Dodd-Frank delegations and conferred with and supported SEC practices to assist IRA and all other individual investors.”

It’s been a long road for the DOL’s fiduciary rule, which was many years in the making under the Obama administration. In November, the department announced an 18-month extension (lasting from Jan. 1, 2018 to July 1, 2019) of the special “transition period” for the fiduciary rule. The DOL said the extension would allow time to complete a review, as directed by President Trump, of alternatives to the regulation.

Critics contended it was an effort by the Trump administration to curtail, or even kill, the rule. 

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