Locke Lord QuickStudy: Fifth Circuit Issues Mandate to Vacate DOL’s Fiduciary Rule

FUNDamentals™ Series
Locke Lord LLP
June 28, 2018
On June 21, 2018, the United States Court of Appeals for the Fifth Circuit issued its mandate to formally vacate the US Department of Labor’s conflict of interest rule (the “DOL Fiduciary Rule”) and related exemptions, certifying its decision on March 15, 2018 in U.S. Chamber of Commerce v. U.S. Department of Labor. In the Chamber of Commerce case, the Fifth Circuit vacated the DOL Fiduciary Rule, reasoning that the DOL did not have the authority to enact the Rule and acted arbitrarily and capriciously in adopting the Rule.

This action means that the DOL Fiduciary Rule is no longer applicable, and the rules under the Employee Retirement Income Security Act (“ERISA”) for determining fiduciary investment advisor (i.e., the “Five-Part Test” from 1975) and the related exemptions that were in effect prior to the issuance of the DOL Fiduciary Rule will now apply. It is uncertain whether the DOL will issue any further guidance or clarification for investment advice fiduciaries. Now, the focus will be on the Securities and Exchange Commission (SEC) “best interest” proposals, issued on April 18, 2018, which seek to establish a “best interest” standard of conduct for broker-dealers when making recommendations to retail investors, clarify the fiduciary standard for investment advisers, and require a relationship summary to be provided to retail customers.

Please consult with legal counsel prior to ceasing any new activities or procedures undertaken in response to the DOL Fiduciary Rule. At a minimum, in most cases, formal action should be taken to rescind any impartial conduct standard policies or other policies adopted in light of the DOL Fiduciary Rule before ceasing any actions mandated by such policies. 

We will continue to monitor additional developments.