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PSCA Executive Reports

April 26, 2018

Fiduciary Rule

On March 15, 2018, the United States Court of Appeals for the Fifth Circuit released an opinion concluding that the U.S. Department of Labor’s (“DOL”) Fiduciary Rule, including the Best Interest Contract (“BIC”) Exemption and other related exemptions, should be vacated in toto. The decision in U.S. Chamber of Commerce v. DOL, a consolidated case including actions filed by the Indexed Annuity Leadership Council and the American Council of Life Insurers, is an unequivocal rejection of both the Fiduciary Rule itself and the basis on which DOL asserted its regulatory authority. 

On April 18, 2018, the SEC introduced more than 1,000 pages of proposed rules related to the standards of care owed by investment advisers and brokers to their retail investor customers. An SEC spokesperson said the new guidance “will explicitly require for the first time in a commission rule that broker-dealers must act in their retail customers' best interest” and that brokers must take “affirmative steps to address the material conflicts of interest that could create incentives to favor their own interest.” In addition, the package clarifies the common law fiduciary responsibilities owed by registered investment advisors and contains significant titling reforms. In the retirement space, this package is significant because the bulk of the “retail investor” market is IRA holders and because the proposed rule related to brokers appears to have been closely modeled after DOL’s “Best Interest Contract Exemption.” 

As of this writing, the Department of Labor has still not announced its intentions with respect to the Fifth Circuit’s decision striking down the Fiduciary Rule. We have no reason to believe DOL will appeal that decision, but it is still possible. Alternatively, another stakeholder could attempt to intervene in the litigation. Absent action, the Fifth Circuit will issue a mandate on May 7 nullifying the rule.

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