Fifth Circuit Court of Appeals vacates DOL fiduciary rule

In split decision, judges say agency exceeded authority

Mar 15, 2018 @ 6:32 pm

By Mark Schoeff Jr.

The Fifth Circuit Court of Appeals vacated the Labor Department's fiduciary rule in a split decision announced late Thursday afternoon, overturning a Dallas district court that was just as adamant in upholding the measure.

By a 2-1 vote, the appellate judges held that the agency exceeded its statutory authority under retirement law — the Employee Retirement Income Security Act — in promulgating the measure. The rule requires that brokers act in the best interests of their clients in retirement accounts.

The regulation replaced a five-part test that determined whether a broker was a fiduciary. The judges criticized a key provision of the rule, the best-interest-contract exemption. The BICE allows brokers to receive variable compensation for investment products they recommend, creating a potential conflict, as long as they sign a legally binding agreement to act in a client's best interests.

"The BICE supplants former exemptions with a web of duties and legal vulnerabilities," the majority opinion states. "Expanding the scope of DOL regulation in vast and novel ways is valid only if it is authorized by ERISA Titles I and II."

The lawsuit was brought by several industry groups that oppose the rule, including the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association and the Financial Services Institute.

A Dallas district court upheld the DOL rule in a decision last year that eviscerated the industry arguments against the rule. The industry decisively won in their appeal Thursday.

The DOL rule, which was promulgated during the Obama administration, has been partially implemented, while the remaining provisions are under a review mandated by President Donald J. Trump that could lead to major changes.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

The capacity conundrum: Why its hampering your growth

How do you get good next gen talent to your firm to help open up more capacity? Live Oak's Mike McGinley has the answer.

Latest news & opinion

Worst day of an awful year leaves no part of market unscathed

Stocks, oil and corporate bonds all plunged, while safe havens like Treasuries and gold stood still.

As it works to pull off a merger, FS Investments admits shortcomings

Management makes public statements about weaknesses at company's funds.

Q&A with Abigail Johnson and Kathleen Murphy of Fidelity Investments

The Fidelity CEO, along with the president of personal investing, discuss record earnings, allegations of sexual misconduct and the challenges facing a changing industry.

The Women’s Issue

News, video and expert opinion about women in financial advice

Meet the 2018 Women to Watch

These female financial advisers and other industry leaders are recognized for their successes and support of other women in the financial advice business.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print