The Department of Labor fiduciary rule does not exist anymore after a late-Thursday court ruling. That court decision opens the door for the Securities and Exchange Commission and state insurance departments to take over rulemaking.
The Fifth Circuit Court of Appeals' 2-1 decision stunned the industry and has many asking the same question this morning: What now?
DOL staff are rumored to be hard at work collecting data on the Obama-era fiduciary rule in order to potentially amend the more onerous aspects. In light of the court decision, Labor Secretary Alexander Acosta has a different decision to make: Does the department appeal the ruling?
"We don’t know what the Department of Labor’s response will be," Barbara Roper, director of investor protection for the Consumer Federation of America, said this morning.
Likewise, here are other immediate impacts from the stunning court ruling:
Watch the SEC. SEC commissioners spoke last month about its commitment to producing a fiduciary standard for all financial advice. The agency was given a mandate to do so by Congress in the Dodd-Frank Act of 2010.
With SEC Chairman Jay Clayton and Acosta both Trump appointees, odds of a rulemaking agreement are good. The DOL could simply do nothing and allow the SEC to take over the issue.
The SEC is expected to produce its rule by the second quarter of 2018, a timeline that could speed up in light of the Fifth Circuit decision Thursday.
“We are working on coming out with a comprehensive proposal,” Commissioner Michael Piwowar, a Republican, told The Wall Street Journal last month.
State regulators are muted. The industry no longer has to fear a regulatory action like the one William Galvin, secretary of the Commonwealth of Massachusetts, filed against Scottrade in mid-February.
Galvin alleged the firm knowingly violated the DOL fiduciary rule by holding a series of call nights and sales contests to drum up new business ahead of its planned merger with TD Ameritrade. Since the rule doesn't exist, those charges are moot.
Stakes rise for states. Suddenly, the National Association of Insurance Commissioners' March 24 meeting to possibly finalize a best-interest standard looms much larger.
The NAIC Annuity Suitability Working Group held a conference call this week and had difficulty agreeing on anything more than minor aspects of its annuity transactions model law. The model is meant to move states from suitability rules to a consumer-focused best-interest standard.
The group meets next March 24 in Milwaukee for the NAIC Spring Meeting. Commissioner Dean Cameron expressed hope that a final model law would be finished and voted on at that meeting.
Similar to the DOL fiduciary rule, the NAIC model would place limits on agent compensation, require more disclosures and set a “best interest” standard. The standard would apply to annuity sales only.
DOL Rule History
The first phase of the fiduciary rule went into effect June 9. It requires advisors and agents to act as fiduciaries, make no misleading statements and accept only “reasonable” compensation.
The final implementation of the DOL rule was delayed from Jan. 1, 2018, to July 2019. In the interim, the Trump Labor Department is expected to weaken the more onerous parts of the rule. That work has just begun.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at[email protected].