Latest Fiduciary Rule Blocked by Judge

The latest iteration of the often-controversial fiduciary rule has been blocked by a federal judge.

In a ruling July 25, Judge Jeremy Kernodle in Tyler, Texas, granted an insurance group’s request for a nationwide preliminary injunction blocking the rule—due to take effect this fall—until further order. The Federation of Americans for Consumer Choice, an advocacy group for independent insurance agents, filed a lawsuit May 2 challenging the U.S. Department of Labor’s (DOL’s) new fiduciary rule, alleging it is “contrary to law and arbitrary and capricious.”

The group, along with other independent insurance agents and firms, collectively filed the lawsuit against the fiduciary rule—which aims to modernize and increase investment advice standards for retirement accounts—in U.S. district court in Tyler, claiming that it exceeds the DOL’s authority and is in violation of the Administrative Procedure Act. They claimed the new rule is similar to a 2016 rule that was struck down in 2018 by a three-judge panel of the 5th U.S. Circuit Court of Appeals in New Orleans.

Kernodle said the Federation of Americans for Consumer Choice and other insurance groups were likely to prevail in their arguments. He blocked the rule nationally from taking effect on Sept. 23 while the lawsuit plays out.

The fiduciary rule, called the Retirement Security Rule: Definition of an Investment Advice Fiduciary, updates the definition of an investment advice fiduciary under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code so that providers adhere to “high standards of care and loyalty” when recommending investments. It ensures that financial advisors, brokers, and insurance agents are held to the fiduciary standard on rollover individual retirement accounts. The rule was finalized in April.

“The final rule and related amended prohibited transaction exemptions require trusted investment advice providers to give prudent, loyal, honest advice free from overcharges,” the DOL said in a statement when finalizing the fiduciary rule. “These fiduciaries must adhere to high standards of care and loyalty when they recommend investments and avoid recommendations that favor the investment advice providers’ interests—financial or otherwise—at the retirement savers’ expense.”

The rule applies a best-interest standard to advice that plan sponsors receive about which investments to include in 401(k) and other employer-sponsored plan lineups. The rule also clarifies that human resource professionals will not be interpreted as giving professional advice when they discuss general aspects of the retirement plan a company provides.

It also “ensures investment professionals can compete for business on a level playing field, instead of being hindered by a skewed system in which different standards exist for advice providers based on the products they recommend,” the DOL said.