Don’t go requiring your financial advisor to be a plan fiduciary just yet! In a March 15, 2018 decision, the Fifth Circuit Court of Appeals struck down the Department of Labor’s (DOL) new fiduciary rule in its entirety. The rule, which became effective June 9 of last year, was due to be fully implemented on July 1, 2019. While a good amount of retirement advisors have expressed dissatisfaction with many of the bureaucratic hurdles contained in the new rule, the fact that the entire rule was struck down is a surprising development in what seemed a foregone conclusion.
No doubt, there are many in the financial industry that are cheering the decision. The new rule would have made anyone who rendered advice on retirement plans a fiduciary – a responsibility not every advisor wanted. One of the most opposed parts of the rule was the heavy regulation on rollovers to Individual Retirement Accounts (IRAs) that took away the incentive for helping participants roll over their accounts. For now, the fiduciary rules revert to the convoluted definitions that were created when the Employee Retirement Income Security Act (ERISA) was established in 1974.
Not that this is necessarily the last we will hear of the DOL fiduciary rule – there is a possibility that the decision could be stayed or the DOL could even appeal the decision. Neither course seems likely since the Trump administration has already expressed a reluctance to new regulations like the fiduciary rule.
The future of defining fiduciaries may come from a totally different direction. The Securities and Exchange Commission (SEC) has been looking into the need for a higher standard of fiduciary care for investors and is expected to issue a proposal later this year. Also, several states are looking into defining fiduciary standards, a practice that may grow in the absence of a federal rule.
Some type of clarification in the fiduciary standards is likely in the near future. Now that the fiduciary discussion has been in the public consciousness for the past seven years, there is not much of an appetite among plan sponsors to utilize an advisor who does not have a fiduciary stake in the plan. Stay tuned!
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advisory services offered through Global Retirement Partners, LLC, a registered investment advisor. Global Retirement Partners, LLC, Frenkel Benefits – an EPIC Company, and LPL Financial are separate and non-affiliated companies.
The opinions voiced in this material are for general information only and are not intended as authoritative guidance or tax or legal advice.