Impact of the 5th Circuit Court’s Ruling on the Department of Labor Fiduciary Rule

By Richard Applegate CFP®, AIFA®, CPFA, ChFC®, CLU®

Two recent rulings from different U.S. Circuit Courts of Appeals have impacted the Department of Labor’s (DOL) Fiduciary Rule. The expanded definition of “investment advice” for purposes of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code of 1986 became applicable after the DOL Fiduciary Rule was passed June 9, 2017. It imposed a much higher standard of care on advisors to support recommendations made to “retirement investors.” This fiduciary standard now applies to advice provided to IRA rollovers, IRAs in general, certain employer-sponsored (ERISA-covered) retirement plans, their participants and beneficiaries (i.e., “Retirement Accounts”).

The DOL Fiduciary Rule placed new requirements on advisers who service Retirement Accounts, mandating, among other things, that they provide advice that is first and foremost in a client’s best interests. The DOL Fiduciary Rule was clear on another point: Any advisor that provides advice to a Retirement Account is deemed to be a Fiduciary and as such is held to the highest level of conduct.

For much of the financial services industry, the problem in acting as a Fiduciary is that it is not the way many representatives have conducted themselves historically. Prior to the DOL Fiduciary Rule, many financial service representatives who handled Retirement Accounts have been able to recommend products that serve their interests first while minimizing or avoiding the full disclosure required under the DOL Fiduciary Rule. This has been at the expense of plan participants and those with individual IRAs.

What Happened?

On March 15, 2018, the 5th Circuit Court of Appeals ruled to vacate the DOL Fiduciary Rule entirely. The ruling, if left unchallenged, paves the way for a reversion back to the 1975 definition of fiduciary investment advice. In other words, we could return to the laws and regulations that were in effect prior to the DOL Fiduciary Rule. Just two days prior to the 5th Circuit’s ruling, the 10th Circuit Court of Appeals upheld the Fiduciary Rule in a case involving its treatment of indexed annuities. The DOL could petition the U.S. Supreme Court to review the 5th Circuit’s decision. The Supreme Court tends to selectively weigh in on disputes where one or more circuits have issued incompatible or “split” decisions. The deadline for filing under this approach is June 13, 2018, but we believe it’s looking less likely that the petition would be granted. Because the 10th Circuit’s “conflicting” opinion was very narrow in its scope and given the fact that there are no other appeals pending in other circuits, we believe it’s less likely that the Supreme Court will intervene.

As a result, individual states may consider additional fiduciary regulation to offer additional protection to investors – particularly if the DOL Fiduciary Rule is taken off the books. Indeed, many states have already introduced or passed legislation imposing a best interest standard of care on advisors and their financial institutions, including Nevada, New York, New Jersey, and Connecticut

What Should Be Done Next?

There continues to be considerable discussion and debate about what will happen next, and there is uncertainty about the future of fiduciary regulations at a state and/or federal level. One thing is certain, however; the DOL Fiduciary Rule is still in place for the time being.

The new DOL Fiduciary Rule was designed to offer retirement plan participants as well as retail IRA investors a higher level confidence in the investment advice being presented to them. Those of us who have long adhered to a fiduciary standard will simply continue to hold ourselves to these standards. As long-standing fiduciary advisors to Retirement Accounts, we acknowledge it is our responsibility to put plan participants’ best interests first. To do that, processes must be established, and decisions documented in all respects of a Plan’s operation. Where applicable, we will also continue to acknowledge our co-fiduciary status with our clients in writing.

Frankly, we see the push back against the DOL Fiduciary Rule as an even greater opportunity for us to stand out from a larger segment of the industry, because we’ve chosen to advise clients in accordance with the best practices that are espoused by the DOL and have consistently endeavored to placed our clients’ best interests first. That’s how we do business.

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Rick Applegate is Managing Director of DBR Fiduciary Plan Solutions at

D. B. Root & Company, LLC, a Pittsburgh-based wealth management firm. If you would like to contact the author, Rick Applegate, please e-mail him at rapplegate@dbroot.com or call 412-227-2800

This material has been provided for general, informational purposes only, represents only a summary of the topics discussed, and is not suitable for everyone. The information contained herein should not be construed as personalized investment advice or recommendations or legal advice. Rather, they simply reflect the opinions and views of the author. D. B. Root does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice that is specific to your situation. There can be no assurance that any particular strategy or investment will prove profitable. This document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such sources and take no responsibility therefore. This document contains certain forward-looking statements signaled by words such as "anticipate," "expect", or "believe" that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. As such, there is no guarantee that the expectations, beliefs, views and opinions expressed in this document will come to pass. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

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