The DOL Rule is Mostly Dead, The SEC Proposal is Out There, and The Future is Murky

A death. A failed rescue attempt. An eleventh hour development on the horizon. Who says the world of healthcare is boring!?

The attempts of the AARP and three state attorneys general were unsuccessful in reviving the dying Department of Labor (DOL) fiduciary rule. In an attempt to save the rule, on April 26, a coalition of attorneys general from California, New York, and Oregon filed to intervene, in a lawsuit challenging the DOL regulation and requested an en banc rehearing of the March 16 decision that vacated the fiduciary rule. On Thursday, May 3, the court denied both of these motions unceremoniously.

It is possible the court may decide to re-hear the case on its own, but that is unlikely. However, the rule is not officially dead until the First Circuit issues its mandate vacating the rule. The Court was expected to issue its mandate on May 7, 2018, but it did not.

With the DOL rule essentially out of the picture, all eyes turn to the Securities and Exchange Commission (SEC) proposal. The SEC now has responsibility for setting fiduciary and “best interest” standards. Their latest proposal sets that standard for “best interest” and calls on brokers to establish policies to identify and avoid conflicts. The SEC proposal also maintains a FINRA arbitration process. This standard could potentially have far-reaching influence on how the NAIC regulates the sale of securities, if adopted.

The Labor Department and Internal Revenue Service clarify that brokers can continue to earn income through commissions when offering mutual funds and other savings products. While the Fifth Circuit Court of Appeals’ decision eliminated those new fiduciary requirements that went into effect this year, it does away with the “Best Interest Contract Exemption.” The BIC provides a means for advisors to offer advice as an ERISA fiduciary and still receive commissions.

The Department of Labor has until June 13, 2018 to appeal the Fifth Circuit’s decision to the Supreme Court. However, given the fact that they passively allowed the deadline to appeal the decision to pass, it’s unlikely they will move on this issue. Meanwhile, the SEC proposal is open for public comment and the Department of Labor has suggested that financial institutions continue to rely on the temporary enforcement policy.

This is a developing issue. Follow the Boon Blog for the most current updates as the situation unfolds.

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