On March 15, the Fifth Circuit Court of Appeals found that the Department of Labor overstepped its authority by attempting to regulate financial advice and advisors. Moreover, the requirements to remain in compliance were “unreasonable.” The fiduciary rule was finally vacated on June 21 after the deadline for appeals passed. Some in the industry agree with the ruling, saying that the rule was poorly defined and gave too broad a scope to the Department of Labor. Further, many felt that the provision allowing litigation by investors was onerous. Others believe this is a step backward for investors and an industry in need of transparency.
In the immediate aftermath of the vacated ruling, it is unclear how the industry will respond. A return to business as usual may not be realistic given all the changes made in preparation for fiduciary rule compliance. Indeed, firms have indicated their willingness to continue with changes already in place. TIAA stipulated on their website:
“Nevertheless, a number of the process enhancements we implemented in response to the 2017 DOL Rule will remain in place, because they align with our core value of putting our clients first.”
Attention now turns to the SEC, which was authorized by Dodd-Frank legislation in 2010 to standardize the regulation of brokers and investment advisors. In April, the SEC finally introduced its first proposal to address the issue. The guidelines do not, however, replace the fiduciary rule by requiring brokers to act as fiduciaries. Financial planner and blogger Michael Kitces explains in a post on his site:
“As it turns out, though, the SEC’s proposal…would only partially lift the conduct standards for broker-dealers, with a new “Regulation Best Interest” requirement that would obligate brokers to act in the best interests of their customers when making an investment recommendation… but only at the time they actually make the recommendation.”
Some in the industry see standards shifting both as a result of the attention brought by the fiduciary rule and the general move toward transparency. In the wake of the vacated rule, some are calling for the industry to embrace open, multi-employer plans to increase the stability of retirement assets, use academic, and not industry-funded, research. Finally, the industry needs to engage and educate plan sponsors and participants with the goal of transparency.