A decision by a federal appeals court this week dealt another blow to supporters of an Obama-era rule intended to protect retirement savers.
The 5th Circuit Court of Appeals ruled Thursday that the Labor Department overstepped its authority by creating the so-called fiduciary rule, parts of which went into effect last year. In general, the rule requires advisors and brokers to put their clients' interests before their own when advising on retirement accounts such as 401(k)s and IRAs.
The ruling overturns an earlier determination by a lower court that the Labor Department was within its bounds in promulgating the measure.
While consumer advocates are decrying the decision, it doesn't mean imminent death for the rule. Although it's uncertain how the Labor Department may respond, the legal battle is likely to continue.
"Even though the Trump administration is not a strong supporter of the fiduciary rule, it will likely continue to defend [it] against legal challenges," said Marcia Wagner, president and founder of Wagner Law Group, in a statement.
For retirement savers, the rule's uncertain future means that advisors will likely continue adhering to the provisions that took effect last June, at least for now. Because the ruling affects only the area the court has jurisdiction over (Texas, Mississippi and Louisiana), advisors beyond those borders remain bound by the requirements already in place, according to Wagner.
Those require advisors to provide advice that aligns with clients' best interests, charge reasonable compensation and not make misleading statements.