Earlier last month in an update on the fiduciary rule, the U.S. Court of Appeals for the Fifth Circuit ruled against the Department of Labor by a two-to- one majority. They agreed with the plaintiffs who filed an appeal in February 2017, which included the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association, the Financial Services Institute, Financial Services Roundtable and Insured Retirement Institute.
The Fifth Circuit Decision
The court agreed with several of the plaintiffs’ arguments when they vacated the rule, writing that the Department of Labor overstepped its boundaries and that the Fiduciary Rule itself was inconsistent, among other reasons: “(a) the Rule’s inconsistency with the governing statutes; (b) DOL’s overreaching to regulate services and providers beyond its authority; (c) DOL’s imposition of legally unauthorized contract terms to enforce the new regulations; (d) First Amendment violations; and (e) the Rule’s arbitrary and capricious treatment of variable and fixed indexed annuities.”
What Happens Now
Technically, the rule is still upheld in all other states except for those in the Fifth Circuit’s jurisdiction: Louisiana, Mississippi, and Texas. It is unclear at this point if the DOL will appeal the ruling; they have until April 30th to do so, or until June 13th to appeal to the Supreme Court. If they do not choose to appeal, the circuit court’s ruling will go into effect on May 7, 2018.
There are some musings that the SEC will formulate a rule of its own, but that might take a while to implement (for context, the fiduciary rule was first proposed around 2009).
What the Ruling Means for You
As a reminder, a fiduciary is someone who acts in the best interest of his or her client. At Chatterton & Associates, we are a team of registered investment advisors and will always put your best interest first; service and transparency are our utmost priorities. If you have any questions regarding the fiduciary rule update or if you need help with your retirement planning, contact us today to see how we can assist you.