For investment advisers, the late 'fiduciary rule' of the U.S. Department of Labor could have made sense.
But for salespeople and brokers, it imposed a duty they had never known. It would have required them to act in the best interests of their clients when selling or buying investment products.
That's not how the industry works, the U.S. Fifth Circuit Court of Appeals said in announcing the death of the rule in Chamber of Commerce of the United States of America v. United States Department of Labor.
The appeals court said as much in March, but made it official with a letter to the trial judge. The Fifth Circuit didn't reverse, remand, or vacate the trial court's ruling. The appeals panel vacated the rule.
Saying the DOL rule "fundamentally transforms years of settled and hitherto legal practices in a large swath of the financial services and insurance industries," the Fifth Circuit twisted the dagger in its decision.
"Only in DOL's semantically created world do salespeople and insurance brokers have 'authority' or 'responsibility' to 'render investment advice,'" the judges said.
The panel said the DOL attempted to rewrite the law, but did not have the authority.
Judge Carl Stewart had a problem with the majority decision. He said the DOL has long regulated the area, and that the new rule replaced an old standard.
In the meantime, the Securities and Exchange Commission has proposed a new rule to subject brokers to the best-interest standard. It is open for public comment until August 7th.