Where Does the Fiduciary Rule Currently Stand in its Implementation?

Up until just several weeks ago, it appeared as if the Department of Labor’s fiduciary rule was on track to be implemented into law. However, since the inauguration of President Donald J. Trump, a new approach regarding government regulations has emerged. In the weeks since the inauguration, industry watchers have questioned whether the fiduciary rule would be subject to modifications or if it would be implemented at all. A recent memorandum issued by the President sheds some light on the path the rule will take, however additional legal actions taken by industry stakeholders complicate this analysis.

At the Law Firm of William S. Heyman, Baltimore fiduciary litigation lawyer Mr. Heyman is dedicated to assisting with an array of legal issues faced by fiduciaries. Mr. Heyman can assist financial advisors, investment advisors, and a broad range of fiduciaries regarding existing and emerging legal duties. Mr. Heyman can also provide organizational-level guidance to financial and investment companies and corporations. To schedule a confidential initial consultation to discuss how Mr. Heyman can assist with fiduciary compliance, call (410) 305-9287 or contact Mr. Heyman online.

What Is the New DOL Fiduciary Rule?

The new fiduciary rule was intended to improve the quality of investment and retirement advice provided to Americans. Generally, the rule would have the effect of elevating all financial professionals proffering retirement investment advice to that of fiduciaries. As a fiduciary, these individuals must take all reasonable steps to avoid even the appearance of self-dealing. Fiduciaries are ethically and legally required to act solely in the best interests of their client.

Essentially, what the rule would mean when it is fully implemented is that financial advisors will be left with little wiggle room to pad profits or recommend products that do not meet the client’s needs. Investment advisors would be required to disclose all conflicts of interest that could influence their decision-making process. Furthermore, all costs and fees would need to be clearly explained and set forth to the clients.

When compared to the suitability standard, the fiduciary standard requires financial advisors to engage in additional steps and practices to avoid conflicts. Whereas “suitability” merely means that the financial product can meet the client’s goals, the fiduciary standard requires significantly more. As such, the rule is likely to impact commission structures. However, this impact may be mitigated if the financial advisor secures a Best Interest Contract Exemption (BICE).

What Is the Status of the Fiduciary Rule?

The fiduciary rule was finalized in April 2016. At the time, the final rule was expected to begin implementation starting April 10, 2017. The implementation process was expected to be completed by January 1, 2018.

However, in January 2017, Representative Joe Wilson introduced a bill that would delay the implementation of the rule. While action was not taken on this bill, it appears that such action would have been unnecessary.

On February 3, 2017, President Donald Trump signed an memorandum delaying the implementation of the rule and potentially permanently scuttling its implementation.  The memo instructs the Department of Labor to engage in a new economic analysis of the rule. If the rule is found to harm investors, disrupt the industry, or cause other enumerated harms then DOL is authorized to rescind or modify the rule.

Despite this setback, the rule has survived industry legal challenges. On February 10, 2017, a Texas court upheld the rule at summary judgement despite a financial industry challenge in U.S. Chamber of Commerce v. DOL. Arguments undergirding the industry challenge to the rule included claims that DOL exceeded its statutory authority or that the rule infringed on First Amendment rights. The judge rejected this and five other arguments challenging the rule.

What will Happen with the Fiduciary Rule?

This marks the second time the rule has been upheld at the summary judgment stage. Generally, when a party prevails at summary judgement they have an extremely strong legal case. While errors of fact and law can occur, such situations are rare. However, when assessing the fate of the rule, one still needs to account for the countervailing political climate in Washington. Essentially financial advisors, insurance agents, and investment companies are facing significant uncertainty due to challenges to this rule.

Work With an Experienced Baltimore Business Attorney

When your business faces legal uncertainty, it is important to have a legal advisor you trust to stay up-to-the-minute on new developments. Baltimore business attorney William Heyman and the Law Firm of William S. Heyman can provide careful guidance to maintain compliance with the relevant suitability or fiduciary standard. To schedule a confidential consultation, call (410) 305-9287 or contact Mr. Heyman online.