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Fifth Circuit Vacates DOL Fiduciary Rule

On March 15, 2018, the United States Court of Appeals for the Fifth Circuit vacated the Department of Labor’s Fiduciary Rule.  The Fiduciary Rule (which is actually seven different rules promulgated by the Department of Labor) imposed heightened standards on retirement investment advisors, and expanded the definition of fiduciary under ERISA.  The Rule went into effect on June 9, 2017, with a transition period until January 1, 2018.

After several business groups challenged the Fiduciary Rule in federal court, the Fifth Circuit, in a 2-1 decision, ruled that the DOL overstepped its authority and that the Fiduciary Rule impermissibly conflicted with its governing statutes.  Differentiating between ERISA plan fiduciaries (subject to duties of loyalty and prudence) and IRA fiduciaries (not subject to duties of loyalty and good faith, but subject to conflicted transaction prohibitions and exemptions thereto), the Court noted that the DOL ignored the historical definition of “fiduciary,” and expanded the class of “fiduciaries” to, among others, stockbrokers and broker-dealers who may have only sporadic contacts with customers.  In a lengthy opinion, the Court found further issues with the Fiduciary Rule (for example, it violated the Administrative Procedures Act), and ultimately vacated it in toto.

It remains to be seen what action, if any, the DOL takes in response.  For the time being, at least, investment advisors have been granted a reprieve.

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