Fiduciary Advice Rule

Fiduciary Advice Rule

Last week, the Fifth Circuit Court of Appeals struck down the U.S. Department of Labor’s fiduciary advice regulation and related prohibited transaction exemptions (the “Fiduciary Advice Rule”).  John Ryan, a partner in Seward & Kissel’s Employee Benefits Group, shares  his initial thoughts on the topic which can be found below:

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According to John, “This is the latest development in the Kafkaesque saga of the Fiduciary Advice Rule, which has been in a transition period until June 2019 while the Department of Labor reconsiders the rule.  One possible outcome of the Fifth Circuit’s decision, once final, is that the Fiduciary Advice Rule is invalid under Administrative Procedures Act (the “APA”) and that this effect is nationwide. However, there are many contingencies still at play:

  • The Department of Labor has 45 days to petition for panel rehearing or for rehearing en banc by the Fifth Circuit and 90 days to petition the Supreme Court for writ of certiorari;
  • On March 13, 2018, the Tenth Circuit Court of Appeals addressing a more limited challenge to the Fiduciary Advice Rule, rejected that challenge and upheld that aspect of the Fiduciary Advice Rule finding it was not arbitrary or capricious. This may present a “circuit conflict” which could be resolved by the Supreme Court; and
  • A separate challenge to the Fiduciary Advice Rule before the D.C. Circuit Court of Appeals is currently held in abeyance pending a joint status report to be filed by the parties within 10 days of the Fifth Circuit Court of Appeal’s decision, which could result in a circuit conflict and should provide insight as to the Department of Labor position on the Fiduciary Advice Rule going forward.”

“Given the significance of the Fiduciary Advice Rule and the number of possible outcomes, coupled with the fact that the current Administration’s opposition to the Fiduciary Advice Rule, it is impossible to predict if, or in what form, the Fiduciary Advice Rule will survive.  In this regard, we note that the SEC’s 2018 Regulator Agenda included as a short-term initiative its own investment advice rule.”

“The panel, with one dissent, found that the Fiduciary Advice Rule expanded the scope of investment advice beyond the ordinary usage of the term and thereby expanded the activities which create a fiduciary relationship with an ERISA plan or IRA to include customary arms-length interactions. The Court reasoned, in part, that the Labor Department’s new definition of “fiduciary” was inconsistent with the plain language of the statute and the common-law meaning of that term. The Court held that Department of Labor exceeded its authority in promulgating the Fiduciary Advice Rule and “vacated the Fiduciary Rule in toto.”

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