The DOL’s fiduciary regulation was scheduled to become effective this September 23. The exemptions were scheduled to become partially effective this September 23 and fully effective September 23, 2025.

The two courts—one in the Eastern District of Texas and the other in the Northern District—have stayed the effective dates. That means that the new rules will not be effective until the courts have decided the validity of the regulation and exemptions and, most likely, until the appeals are exhausted one way or the other.

As a result, the current fiduciary regulation, with its 5-part test, will continue in effect pending the final resolution of the lawsuits. In the same vein, the current PTEs 84-24 and 2020-02 will continue in effect.

This article and the next few will discuss the consequences of the stays for broker-dealers, investment advisers and insurance companies.

But, first, let’s look at the likely progression of events. The DOL has the right to an immediate appeal of the stays. But will it appeal? Hard to say, but my view is that the likelihood of success on appeal is slight. It might be better strategically to proceed directly to a hearing on the merits. In that case, the next move would likely be competing motions for summary judgment. Since the courts have already indicated that the plaintiffs (primarily from the insurance industry) are likely to succeed in the desire to overturn the DOL rules, and since the judges believe that they are bound by the 5^th Circuit Court of Appeals Chamber of Commerce decision in 2018 (which overturned the Obama era fiduciary rules), it seems almost certain that the judges will vacate the regulation and exemptions.

In that case, the DOL will undoubtedly appeal to the 5^th Circuit Court of Appeals. That appeal will be heard by a 3-judge panel. Depending on the judicial philosophies of those judges, they could rule in favor of the DOL’s position or against it. The losing party will probably request an en banc review by the full judicial panel in the 5^th Circuit. Assuming that happens, the losing party will request that the Supreme Court consider the case.

That may very well be a 3-year or longer process before we know the ultimate outcome.

However, there is a wild card. If the Republicans win the White House in the upcoming elections, they may decide to drop any further appeals if the plaintiffs have won the most recent decision. That is basically what happened in 2018, when control of the White House changed hands, from Democratic to Republican, before the Chamber of Commerce decision was handed down.

Where does that leave us?

For one thing, it leaves us uncertain about the application of the current fiduciary rule to some kinds of recommendations. For example, if a representative of a broker-dealer or registered investment adviser recommends a transfer of an IRA from another firm, is that a fiduciary recommendation under the 5-part test if investment recommendations are then regularly made to the IRA owner? Also, in the past the DOL has said that, if a fiduciary to a plan (e.g., a 3(21) or 3(38) investment adviser) recommends a rollover to a participant, that would be fiduciary advice. Does the DOL continue to hold that view?

However, it leaves us certain about other things. For example, if an insurance-only agent recommends a rollover to a fixed annuity, that recommendation, standing alone, will not be fiduciary advice—because it doesn’t satisfy the “regular basis” part of the 5-part test. As another example, if a broker-dealer makes ongoing commissioned investment recommendations to an IRA owner, that will be fiduciary advice and the relief provided by PTE 2020-02 will be needed.

It also heightens the focus on guidance issued by the SEC and the SEC staff on rollovers and account types. For example, the SEC staff has said that a rollover recommendation by a broker-dealer or investment adviser requires a best interest process that largely mirrors the requirements in the stayed amended PTE 2020-02.

My next few articles will explore these issues in more detail.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

The views expressed in this article are the views of Fred Reish, and do not necessarily reflect the views of Faegre Drinker.