DOL’s New Fiduciary Rule & the SEC’s Best Interests Rule – Is No News Good News?

Neither the Department of Labor (DOL) nor the Securities & Exchange Commission (SEC) has given any indication of how they are progressing with their new respective fiduciary rules. Last year, both agencies said they would publish their respective rules in September of this year. At this point, it seems unlikely either agency will meet this deadline. Additionally, it is possible these rules may never materialize due to the current administration’s general view on regulations.

In March of last year, almost 10 years after the DOL’s Fiduciary Rule was first proposed, the Fifth Circuit of the U.S. Court of Appeals vacated the rule in its entirety. The DOL elected not to appeal to the Supreme Court. Quickly following this decision, and to no one’s surprise, the SEC issued a package of its own proposed advice standards. This includes a “Regulation of Best Interest.” The Commission indicated that a final rule would be forthcoming this fall.

In October, DOL released its regulatory agenda for 2019 which includes plans to issue a revised Fiduciary Rule in September of 2019.  The essence of the DOL’s original Fiduciary Rule was that persons advising plans, participants or IRA holders, are acting as fiduciaries and may only make recommendations that are in the “best interests of the client.” The SEC’s new rule goes beyond the existing rule of suitability and requires that brokers and advisors put the best interests of their clients ahead of their desire to make money. Both rules have generated controversy. They have been criticized as unnecessary and overly complex (DOL’s rule is 176 pages long and the SEC’s proposed rule is almost 1,000 pages). The DOL’s rule experienced challenges in the courts on the grounds that the attempt to regulate the financial services industry went beyond the Department’s statutory authority. Although the aims of these two agencies are similar, they have made no attempt to coordinate their efforts.

ACR#315762 05/19