Debate: Were Texas Courts Right to Pause DOL Fiduciary Standard?

Their Reasons:

Byrnes: Staying enforcement of the DOL's final fiduciary standard on a nationwide basis was the only viable option for the district court. The alternative would create confusion among both clients and advisors. Advisors in some areas would be required to comply with the rule just next month, while others would still be permitted to work with the tried-and-true 1975 standard. 

Bloink: Courts typically only grant preliminary orders preventing imposition of new requirements for the plaintiffs in the case who have demonstrated a likelihood of suffering some type of harm. Preventing a finalized rule from becoming effective on a nationwide basis is unusual and uncalled for, given the fact that the rule has been through the administrative rulemaking procedures. Everyday investors are the ones who will be hurt by this nationwide stay.

Byrnes: The fact is that the plaintiffs are very likely to succeed on the merits. The new rule simply mimics the Obama-era rule, which has already been struck down. The rule is a massive expansion of the ERISA fiduciary standard that's extremely unlikely to stand in its current form. There's no rational reason to force advisors and firms into compliance with yet another rule that will be rejected by the courts.

Bloink: The plaintiffs in this case have yet to argue or prove their case. It's likely that additional appellate review will be required even if they do succeed on the merits. This nationwide stay puts advisors in a period of limbo once again, with the threat of the new rule becoming effective immediately after a court finally issues an opinion. Advisors and clients shouldn't be forced to guess at what the Fifth Circuit will decide when the DOL has already released its rule. The reality is that many firms will unfortunately be forced to take steps to comply with two sets of rules concurrently. 

Byrnes: We simply can't have a rule where one-time advice is going to generate fiduciary liability. It's extremely unlikely that courts are going to permit such a broad and sweeping fiduciary standard to apply. One-off advice transactions simply don't create a relationship of trust and confidence between advisor and advisee. There is no reason to require firms to comply with a standard that will never stand in its existing form.

Bloink: This new fiduciary standard is simply too important to allow a court that leans this conservatively to essentially engage in what amounts to lawmaking. The Fifth Circuit should not have the authority to dictate standards that apply on a nationwide basis. Unfortunately, that's exactly what has been occurring in recent years. Investors should be entitled to expect that their advisors will be looking out for their best interests, rather than the advisor's own financial gain. That's true even in situations involving one-time rollover advice, which is often some of the most important advice that clients ever receive.

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