Florida Elder Law & Estate Planning Blog

Fiduciary Rule Struck Down By Federal Appeals Court

On March 15, 2018  the Fifth Circuit Court of Appeals struck down the Department of Labor’s proposed fiduciary rule. As we reported in November 2017, that rule was intended to curb conflict of interest by financial professionals who offer retirement account advice. The rule required advisors to make recommendations based solely on the investor’s  best interest.

Industry groups such as the U.S. Chambler of Commerce, the Financial Services Institute and the Securities Industry Financial Markets Association have welcomed the recent court ruling. They argue that the fiduciary requirement is overly burdensome for financial firms, and actually makes advice less affordable for investors of more modest means. Consumer advocates, on the other hand, have criticized the ruling. Stephen Hall of the Better Markets Association has stated that the ruling is a “terrible setback in the fight for the simple, common sense principle that Americans saving for retirement deserve investment advice that is in their best interest.”

At this point, the Department of Labor has two options: It can request that the Court of Appeals rehear the case, or it can ask the Supreme Court to hear it.

What does all this mean for you? For now, investors should understand that the less stringent “suitability” standard is in effect. This means that advisors must make recommendations that are “suitable” for the client, not necessarily in the client’s “best interest.”  Until the issue is settled, if you are seeking advice about retirement accounts, you should ask if your broker adheres to the fiduciary standard.  Some advisors may act as fiduciaries in certain instances, but not when it comes to retirement accounts.  Always ask why a particular course of action is being suggested. 

Note that financial professionals who are Registered Investment Advisors (RIA’s) DO operate under the fiduciary standard.