Bye-Bye, Biden-Era Fiduciary Rule. Here’s What Comes Next

In the words of NSYNC, it’s officially “Bye, Bye, Bye” to the Department of Labor’s Retirement Security Rule. 

On Tuesday, a Texas federal judge vacated the Biden-era rule that would have expanded the definition of “fiduciary” to cover practically all professionals giving advice to retirement plan participants, including one-time advice about IRA rollovers and commission-based annuity recommendations. The decision, pending the anticipated dismissal of a parallel lawsuit in Texas, returns the roughly $14 trillion DC plan industry to the longstanding “five-part test” for determining a professional’s fiduciary standing, a determination that comes with strict limits on self-dealing activity and requires the application of exemptions for the collection of compensation. 

So for now, a years-long battle for insurance companies, broker-dealers and other financial firms comes to an end, though advisors will still be governed under existing frameworks, such as the Securities and Exchange Commission’s Regulation Best Interest and state-based rules adopted in recent years by insurance commissioners.  

“It’s not going to change anything for the vast majority of advisors/brokers,” says Knut Rostad, president of the non-profit Institute for the Fiduciary Standard. “It’s going to allow them to do what they have been doing, by and large, without concerns of legal liability, or breaching a true fiduciary standard.” 

Cause for Industry Group’s Celebration 

If enacted, critics contended, the rule would have sharply limited practices like selling commission-based products. Now that it’s gone the way of the dodo, industry groups are rejoicing: 

• “The Department’s decision to end this case and the Court’s order vacating the fiduciary rulemaking package closes the chapter on the Biden administration’s legally flawed fiduciary regulation,” the American Council of Life Insurers, National Association of Insurance and Financial Advisors, Finseca, Insured Retirement Institute and National Association for Fixed Annuities said in a joint statement. 
• “The court’s ruling confirms the Biden rule conflicts with current law and exceeded the department’s authority,” they added. 

But, others worry about the lack of protection for retirement savers. Rostad said that if the DOL introduces a new rule (as it’s expected to do later this year) it may even “make matters worse,” given the White House’s eagerness to introduce potentially risky investments into 401(k)s. When asked whether saying goodbye to the Retirement Security Rule means a potential increase in advisors not acting in the best interest of their clients, he added: “The message that is being delivered is being very well understood by the firms that have the greatest interest in what is allowable in retirement accounts.” That message? “Never mind any serious consideration of fiduciary safeguards.” 

Missing the Mainstream. Sometimes, a push like the one from the Biden administration is enough to generate public awareness about a topic that greatly impacts everyday investors but that isn’t top of mind, such as the fiduciary standard. But that’s likely not the case here. Rostad says he doesn’t think the latest attempt to crack down on any potential conflicts of interest in retirement advice was understood by the public as much as it was during previous attempts under the Obama administration.