With consecutive court rulings putting a hold on the Department of Labor's Retirement Security Rule, wealth industry professionals find themselves facing yet another period of regulatory uncertainty.
While the rule was broadly aligned with the requirements of Regulation Best Interest (Reg BI) and the Advisers Act of 1940 — along with the regulatory guidance known as PTE 2020-02 — many wealth advisers faced key decisions around their compliance programs ahead of the September implementation date.
Now that a Texas court has stayed the latest iteration of the fiduciary rule, advisors have more space to breathe and consider how they plan to proceed. Nonetheless, the outlook remains messy, according to a panel convened by the law firm Faegre Drinker.
Speakers on the panel included David Porteous, a partner at Faegre Drinker; Armin Sarabi, the chief compliance officer and general counsel at Alphastar Capital Management; Victoria Olson DeLucia, director of institutional engagement at Confluence; and Randy Barnes, director of product and sales engineering for InvestorCOM.
The panelists were in agreement that the fiduciary rule issue is far from finished. They also agreed that regulatory pressures have encouraged firms of all types to make their processes more nimble and tech-enabled, broadly navigating an uncertain environment relatively well.
Practices have been streamlined across such key functions as rollover recommendations, portfolio management and client reporting, the experts noted. The result is an advisory industry that is better prepared to navigate what the panelists described as a regulatory quagmire.
Where the Rule Stands
In July, the U.S. District Court for the Eastern District of Texas granted a request of the Federation of Americans for Consumer Choice and several independent insurance agents to delay the September implementation of the Retirement Security Rule.
In their request, the plaintiffs argued that Labor's rule will cause too much damage if it goes into effect. They asked the court to stay implementation until it resolves their broader case against the rule, and the ruling on the motion to stay did just that.
The 2024 fiduciary rule "suffers from many of the same problems" as the rule that Labor enacted in 2016, the decision states. That rule was ultimately vacated by a federal court in Texas.
Porteous noted that the motion-to-stay ruling suggests that the plaintiffs are likely to succeed on the merits of their claim because the 2024 Fiduciary Rule conflicts with ERISA in several ways, including by treating as fiduciaries those who engage in one-time recommendations to roll over assets from an ERISA plan to an individual retirement account.
For advisors and other financial professionals, this means that their duties and requirements have reverted to the historical norm created in 1975 in which they are subject to the five-part test for determining fiduciary status.
