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THE status OF THE
fiduciary rule
In April 2016, the Department of Labor (DOL) issued a comprehensive set of regulations referred to as the Fiduciary Rule. The purpose of the Fiduciary Rule was to expand the definition of investment advice fiduciary to all financial advisors making recommendations to investors with assets in an IRA and certain tax-deferred annuities as well as to those with assets in an employer-sponsored retirement plan.
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The implementation of the original Fiduciary Rule was delayed and was to be fully implemented by July 2019. On June 9, 2017, the impartial conduct portion of the Fiduciary Rule went into effect. The impartial conduct portion of the rule requires financial advisers who manage mary e. vandenack retirement accounts or provide retirement advice to act in a manner that places the interests of customers over the interests of the advisers. The general purpose behind the Fiduciary Rule was to provide more protection for retirement investors. The original provisions of the Employee Retirement Income Security Act (ERISA) applied primarily to investors in employer-sponsored and union retirement plans. Since ERISA was enacted, there has been a significant move to individual retirement accounts (IRAs) and participant-directed retirement plan accounts. There have also been developments in the financial industry resulting in possible conflicts for advisers as between their own compensation and the best interests of the client. The Fiduciary Rule resulted in a significant impact on the financial industry. The Fiduciary Rule has both supporters and opponents and multiple lawsuits have been filed to prevent enforcement of the rule. At the same time, various states have sought to pass statutes or find other strategies to require financial professionals to comply with the concepts promulgated in the Fiduciary Rule. Recently, the Fifth Circuit Court of Appeals issued a ruling vacating the Fiduciary Rule. As of the writing of this article, it is unclear whether the DOL will appeal the Fifth Circuit ruling. In issuing its ruling, the Fifth Circuit made a distinction between investment advice fiduciaries to employer and union sponsored retirement plans who are compensated on a fee basis and brokers and insurance salespersons who earn a commission and concluded that brokers and insurance salespersons are not fiduciaries under ERISA and that the DOL cannot regulate advisers who sell products on a commission basis. Financial professionals should avoid assuming that a return to the previous status quo will ultimately be the path to take. Even if the DOL does not appeal, financial professionals should monitor any possible regulations that may be promulgated by the SEC as well as various states. As to those with investments in IRAS, investors should be aware that a distinction has been made between fee based advisors to employer retirement plans, who have a fiduciary responsibility to act in the best interest of the investors and stockbrokers and insurance salespersons, who will not. To the extent an investor prefers that an adviser have a fiduciary obligation, the investor should consider keeping assets within the employer or union plan rather than rolling the assets to an IRA. mquarterly • SuMMer 2018