On March 15, the U.S. Fifth Circuit Court of Appeals ruled the Department of Labor “lacked statutory authority to promulgate the [fiduciary] rule with its overreaching definition of ‘investment advice fiduciary.’” In their decision, the court determined the DOL relied on an “a historical and strained interpretation of ‘fiduciary’ and boasted ‘arbitrary and capricious exercises of administrative power.’”

The Alternative & Direct Investment Securities Association (ADISA) applauds the court’s ruling, and has long held the view that a uniform fiduciary standard promulgated and administered by the SEC that provides investor protections and maintains affordable access to professional investment advice is the best and proper course for the industry and the investor.

Now that a federal court has overturned the Department of Labor fiduciary rule, there remains a high level of uncertainty. Here’s what may happen next:

• The department could ask the Fifth Circuit to reconsider its decision, requiring all of the court’s judges to review it, rather than only the three judges who previously assessed the decision.
• The department could appeal the ruling to the U.S. Supreme Court to ultimately determine the fate of the rule. Given that other federal appeals courts have upheld the Department of Labor’s fiduciary rule, many observers believe the high court would accept the case, but there is no guarantee that it would.
• The department could request a stay of the Fifth Circuit’s ruling should it seek to pursue a review by the Supreme Court. If granted, the rule would remain in effect, such as it is, pending a decision of the Supreme Court.
• Alternatively, the Department of Labor could opt to let the decision stand without appealing it, ultimately making it easier to start over.

The Trump administration has made it clear that it is no fan of the Obama-era fiduciary rule, and is currently reviewing the rule with expected changes or complete dismissal of the rule expected. While the rule went into partial effect in 2017, the Department of Labor has since announced it would not enforce the rule at all “pending further review.”

As of now, the fiduciary rule is moot, and it is unlikely the Trump administration will seek to appeal the Fifth Circuit’s ruling. As such, we wait to see how the Securities and Exchange Commission will address a fiduciary standard, if at all.

“This is good, but ultimately interim, news for the majority of us who believed the DOL’s fiduciary rule to be flawed, and we now proceed to sort out where we stand,” said Catherine Bowman, ADISA’s legislative and regulatory committee chair. “As always, ADISA will continue to monitor the issue and work dutifully with the many stakeholders to support our members’ interests.”

John Harrison is executive director of the Alternative & Direct Investment Securities Association (ADISA).