Home Alts News Appeals Court Strikes Down DOL Fiduciary Rule

Appeals Court Strikes Down DOL Fiduciary Rule

A federal appeals court voted 2-1 to vacate the Department of Labor's fiduciary rule on the grounds that the regulation bears hallmarks of “unreasonableness” and constitutes “arbitrary and capricious exercises of administrative power.”

image_pdf

A federal appeals court voted 2-1 to vacate the Department of Labor’s fiduciary rule on the grounds that the regulation bears hallmarks of “unreasonableness” and constitutes “arbitrary and capricious exercises of administrative power.”

The nine plaintiffs in the case include the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association, and the Financial Services Institute.

In a split decision, the Fifth Circuit Court of Appeals reversed the judgment of a Dallas district court and ruled that the DOL “lacked statutory authority to promulgate the rule with its overreaching definition of ‘investment advice fiduciary.’”

The majority judges took aim at the best interest contract exemption, which permits brokers to earn commissions if they sign a contract to act in the best interests of their clients and allows them to avoid prohibited transactions penalties.

“Were it not for DOL’s ahistorical and strained interpretation of ‘fiduciary,’ there would be no rationale for the BICE exemptions,” said the majority judges.

“DOL has made no secret of its intent to transform the trillion-dollar market for IRA investments, annuities and insurance products, and to regulate in a new way the thousands of people and organizations working in that market,” the ruling states.

“Large portions of the financial services and insurance industries have been ‘woke’ by the fiduciary rule and BIC exemption. DOL utilized two transformative devices: it reinterpreted the 40-year old term ‘investment advice fiduciary’ and exploited an exemption provision into a comprehensive regulatory framework.”

The fiduciary rule, which is currently under review as directed by the President, attempts to reduce conflicts of interest in retirement investment advice and redefines who is considered an investment advice fiduciary under the Employee Retirement Income Security Act of 1974. Enforcement of the rule was delayed for 18-months until July 1, 2019.

A federal appeals court ruled in favor of the DOL on Tuesday in the fiduciary rule case filed by Market Synergy Group, an insurance agency that works with insurers to develop fixed indexed annuities and other insurance products for distribution.

Click here to visit The DI Wire directory page.