Courts Collide: 10th Circuit Rules for Investors While 5th Circuit Rules for Wall Street

Days after After the 10th Circuit Court of the U.S. upheld important retirement investor protections finalized in 2016 by the Department of Labor (DOL), the 5th Circuit Court struck down the investor-friendly DOL Fiduciary Rule.

Wall Street firms, through some of the most powerful (and highly paid) lobby groups in the country sued DOL over the Fiduciary Rule, which requires that all firms and financial intermediaries advising retirement plans and investors must provide advice in the investor's best interest. The Rule's "Impartial Conduct Standards," in place since June 2017, require adhere "basic fiduciary norms and standards of fair dealing," including:

  • act in the best interest of customers
  • charge no more than reasonable compensation
  • and not make misleading statements
  • This is not a lot to ask when an investor entrusts their retirement financial well being to you.

    5th Circuit Strikes Down Fiduciary Rule

    Currently what this means is that investors in Texas, Mississippi and Louisiana don't necessarily have the protections of the Fiduciary Rule unless they are working with Registered Investment Advisers, who ARE fiduciaries to all clients in all accounts, under a different law enacted in 1940. Texas has state rules on fiduciary conduct for brokers.

    The 5th Circuit's ruling is likely to be appealed to The Supreme Court, but its ruling yesterday buys time for non-fiduciary firms to act in their own self-interest, not their client's or customer's, for now.

    Steve Hall, of Better Markets, strong advocates for better behavior by financial services firms, said this:

    “The Fifth Circuit’s decision 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. The decision is riddled with flaws: The court misapplied the law, deviated from the decisions of every other court to consider the rule, turned a blind eye to dramatic changes in the retirement landscape over the last 40 years, and worst of all, ignored the plight of tens of millions of Americans who lose tens of billions of dollars a year in lost retirement savings due to financial advisers’ conflicts of interest."

    “Moreover, the opinion is infused with hostility toward the DOL and the rule itself. That tenor has no place in a decision of a federal circuit court, particularly on a matter of such enormous importance to the public. There is a retirement crisis in this country and this decision is going to make it much worse than it otherwise would have been. Those real-life facts for hardworking Americans merit the utmost respect."

    Related: The DOL Fiduciary Rule Does Not Cost Investors More or Limit Investor Access to Advice or Products

    Meanwhile, 10th Circuit Upholds Fiduciary Rule

    Meanwhile, in a lawsuit against the DOL Rule in Kansas and surrounding states ruled FOR investors, upholding the DOL Fiduciary Rule. So this fight for better outcomes for retirement investors ( a bigger retirement nest egg ) is not over. Meanwhile, investors must stay alert. Ask your financial intermediary exactly what their relationship to you is: are they your fiduciary, at all times, in all your accounts? Get it in writing or go elsewhere.

    What Can Investors Do to Protect Themselves?

    So what can investors do to get advice in their best interest from a fiduciary? Choose a Registered Investment Adviser (RIA). They are already fiduciaries to all clients, in all accounts. There are 12,616 RIA firms in the U.S., serving 30 MILLION investors. They manage $70 TRILLION, and employ more than 750,000 people. Find one! Look at CEFEX for a Certified RIA, NAPFA , Garret Planning Network or XY Planning Network.

    And use the Fiduciary Oath to help protect yourself. Print it, have your adviser, broker, agent, planner sign it. Put the signed document in your important investment file -- it's very valuable. And don't make a move, sign a contract or purchase any investment or insurance without it.