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Thought Leadership in Action

What We Know — and Don't Know — About the Fiduciary Rule for Advisers

A deregulation-focused presidential administration and a federal court ruling have led to plenty of people writing the obituary for a controversial federal rule that required all advisers working on retirement accounts to act as fiduciaries for their clients. But the battle over the so-called fiduciary rule continues to play out in the investment industry and among state policymakers, prompting lingering uncertainty among advisers, many of whom invested heavily to comply when the rule was in effect.

 Let’s take stock of what we know and don’t know about this complex debate.

The rule, created by the U.S. Labor Department, required that broker-dealers consider only the client’s best interests — instead of commissions or fees — when providing retirement advice. The 5th U.S. Circuit Court of Appeals effectively killed the fiduciary rule in 2018, and the Trump administration declined to appeal the decision to the Supreme Court.

There are few signs that the administration plans to change course. President Donald Trump this year announced plans to nominate Eugene Scalia, son of former Supreme Court Justice Antonin Scalia, to replace Alex Acosta as labor secretary. The younger Scalia served as part of the legal team for the financial industry's lawsuit that led to the appeals court ruling nullifying the rule. However, until Scalia takes the reins of the Labor Department, industry observers can only speculate how he would approach the fiduciary rule.

“I think everything is up in the air at DOL now because of the resignation of Acosta and the nomination of Scalia,” retirement law specialist Fred Reish told CNBC. “No one really knows what approach Scalia would take.”

Prior to Scalia’s nomination, Acosta had said the department would collaborate with the Securities and Exchange Commission to issue a new fiduciary rule this year in conjunction with the SEC’s best-interest rule.

 That regulation says a broker-dealer is required to act in the best interest of a retail customer when making a recommendation for any securities transaction or investment strategy involving securities, although it’s unclear to what extent it will apply to retirement advice and some other types of investment advisers. 

States including Nevada, New Jersey and Massachusetts have expressed dissatisfaction with the scope of the SEC’s proposal and are seeking to impose their own fiduciary rules on advisers, despite strong opposition from Wall Street and industry groups.

“We are proposing this standard, because the SEC has failed to provide investors with the protections they need against conflicts of interest in the financial industry, with its recent Regulation Best Interest rule,” Massachusetts Secretary of the Commonwealth William Galvin said in a statement, as reported by Financial Planning.

The Insured Retirement Institute has asked Massachusetts regulators to delay action, and similar situations are playing out in Nevada and New Jersey, but it seems clear that the fight over the fiduciary rule is not over.


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