2017’s new fiduciary rule passed down by the Department of Labor (DOL) has been a heavy burden for financial industry workers adjusting to the new requirements. For those unfamiliar with the new rules, the DOL now requires any financial advisors working with retirement accounts to follow the stringent rules of “fiduciary duty.” Rather than simple standards of fulfilling the client’s wishes, these new standards could punish advisors for many issues that previously went overlooked. This could hold them responsible for accidental missteps with conflicts of interest or even some commission-based fees.
With the industry scrambling for a solution, many people are wondering if it is too late to strike down this new rule. Baltimore civil litigation attorney Ken Gauvey of The Law Practice of Ken C. Gauvey explains some potential moves, now and potentially in the future, to strike down this new rule.
Moves to Reverse the DOL’s New Fiduciary Rule
The new fiduciary rule was passed back in the Obama administration as an attempt to increase transparency and accountability for financial advisors. There is a clear disconnect between the average person’s expectations for financial services and what the law actually requires financial advisors to do. This sometimes leaves investment clients disappointed in the results of their investments, but until this new rule took effect, advisors were generally protected from backlash. Now, with higher standards for conduct, financial advisors are at a greater risk for both justified and frivolous claims against their professionalism, which would not have occurred under the old rules.
In an attempt to combat this, there were already moves taken to suspend or reject the new DOL rules. Since the rule was designed under the Obama administration, the Trump administration has pushed back against the rule. A series of delays from the current administration pushed-back the date that the rule takes effect into the summer of 2017. The rule will also be in a transitionary period, and will not take full effect (with every element of the new ruling) until July 1, 2019.
Still, in recent days, there has been more backlash which could overturn the new rules. The Securities and Exchange Commission (SEC) is undergoing some significant personnel changes with regard to its financial industry regulating roles. Of the nominees for vacancies, there is a split between pro-fiduciary rule and anti-fiduciary rule candidates, so it appears the SEC may not be the route to end the new ruling.
Congress, also this past week, has introduced a bill in the House of Representatives that could reverse the Department of Labor’s new rule. If this bill were to pass and be signed into law, it could reverse the DOL’s rule before it is fully implemented.
Routes to Repealing the DOL Fiduciary Rule
The Department of Labor is part of the President’s cabinet, with the Secretary of Labor sitting in charge of the body’s decisions. Since the DOL is part of the President’s cabinet, it does not ordinarily have the ability to write laws. Congress is the only body in the US Government that can write or change laws. However, Congress can give-away some of its legislative (law-making) authority to bodies like the DOL, giving them the power to write some laws.
Because the DOL wrote this rule, it could reverse it. In theory, the DOL could respond to the outcries of the financial services industry and reverse their decision. This could potentially restore the rules to their previous state. However, the wheels of change move very slowly in departments like the DOL, and a sudden reversal seems unlikely, even under the current leadership.
The word “overturn” is commonly used to discuss court rulings. In theory, a challenge to the new DOL rule could be made through the courts. However, this route would likely be unsuccessful for a number of reasons. The primary reason the DOL’s fiduciary rule would not be overturned in court is that it does not appear to violate the Constitution. While the Supreme Court has broad powers to strike down unconstitutional rules, this rule was created through the proper legal channels to regulate financial investments, and likely does not violate any constitutional rules.
Lastly, Congress is the most likely battleground to reversing the fiduciary rule. With enough support in the House of Representatives or the Senate, a bill reversing the DOL’s ruling could be passed. This could literally rewrite the law on financial services, restoring the old accountability standard. For now, we will simply have to monitor the situation and see how it turns out.
Fiduciary Rule Lawyer in Baltimore, Maryland
In the meantime, as this rule becomes the standard in the financial industry, retirement account managers and advisors may be required to change their practices. For advice on what you need to change about your practice, and for help adopting the new fiduciary standards, talk to a financial services advisory lawyer. Baltimore attorney Ken Gauvey of The Law Practice of Ken C. Gauvey may be able to take your case. For a complimentary legal consultation with our Maryland breach of fiduciary duty lawyer, call 443-692-7685 today.