On March 15th a three judge panel of the 5th circuit court of appeals vacated the Department of Labor’s Fiduciary rule in a 2-1 split decision. While many advisors may be breathing a sigh of relief at this knife in the back of some very complicated and onerous regulation, the outcome is not that clear. The court has jurisdiction over only a handful of southern states and stands at odds with other rulings, notably the 10th circuit, supporting the regulation.
The justice department must now decide whether to appeal the decision to the Supreme Court, request an “en banc” review of the full court, or let the mixed rulings stand. In the meantime financial institutions must decide how to design and imminent compliance policies nationally and may well decide to operate as though the rule remains.
But that is not all. States may take to take center stage. New York, often the regulatory evangelist, proposed rules in December to implement fiduciary rules for life insurance and annuities and is pushing the National Association of Insurance Commissioners (NAIC) to adopt a national best interest standard. But perhaps the biggest actor in this drama may be the SEC which is planning to release its own proposal in the summer.
So while the news of the 5th Circuit’s decision is welcome to many, advisors must stay vigilant as this play is only in the second act. Multiple parties are moving to define and regulate the nature of the advisor-client relationship which will impact costs of doing business, advisor liability, and client access to financial advice for years to come. I encourage everyone, through the myriad of industry groups representing the industry, to make you voice heard.
Because ultimately, after the conspiratorial Roman senators killed Julius Caesar, Rome did not return to a republic. Rather, after a civil war, under Augustus, Rome became an empire. Beware the Ides of March indeed, and be careful what you wish for.
