Much remains uncertain about the future of the Department of
Labor (DOL) fiduciary rule—crafted and adopted by former President Barack Obama's administration
but left to current POTUS Donald Trump to implement.
Will the new president, who is an outspoken critic of
government regulation of financial markets, make it a priority to halt the rulemaking
before the first deadlines in early April, now just weeks away? What would the
impact on client relationships be if the new administration only successfully
halts the rulemaking later in 2017, or if it takes them until 2018 to do it? Is it possible the rulemaking will stand even after a review by the new DOL leadership? Even
experienced attorneys and industry executives admit they are perplexed
as to just what could happen next.
One fact that is increasingly clear, however, is that federal
district courts across the U.S. are ready to give broad authority to the DOL in
enforcing its agenda, demonstrated by simple fact that the courts have so
far been wholly unwilling to pull the teeth out of the aggressive DOL
rulemaking that would turn pretty much anyone giving advice to retirement
savers for compensation into a full-fledged fiduciary. Obama administration
officials are no doubt feeling vindicated by the court victories, which confirm
at least preliminarily that the DOL has sufficient regulatory authority to go
after conflicts of interest in the defined contribution (DC) advisory
It may not mean much in the
end that the DOL has now posted a fourth district court victory related to the fiduciary
rule, this one coming in the U.S. District Court for the District of Kansas in
a case filed by annuity firm Market Synergy Group. In this particular case, plaintiffs
argued unsuccessfully that they would never be able to make the Best Interest Contract
Exemption (a key mechanism underlying the new fiduciary rule) workable given
the commission-heavy distribution arrangements traditionally used for
fixed-index annuities. They wanted the DOL to be forced by the court to allow annuity
providers to work under the 84-24 exemption. Their claims were stated under the Administrative Procedure Act and Regulatory Flexibility Act.
Plaintiffs' arguments failed outright, with the judge essentially just rehashing the same conclusions reached in a previous denial of a motion for preliminary injunction filed by Market Synergy. That initial decision led many to predict (successfully) the lawsuit would ultimately fail.
When all this is added to the news emerging last week that
the Trump White House had submitted an order for the DOL to review the fiduciary rule, and to the fact that the DOL has actually
now started asking for stays in fiduciary-focused litigation still outstanding in other district courts, it all makes for quite
a confusing picture. As several Employee Retirement Income Security Act (ERISA) attorneys have suggested, at this point
only time will tell what’s in store for advisers’ fiduciary future.
The full text of the most recent Kansas court decision is