Federal court tosses out fiduciary rule

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TheDDC
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Federal court tosses out fiduciary rule

Post by TheDDC » Thu Mar 15, 2018 10:21 pm

As if it the FA landscape wasn't already bad enough...

Federal court tosses out Obama-era rule requiring financial advisers to act in customers' best interests

http://thehill.com/regulation/court-bat ... ciary-rule

Of course, the FAs operate mostly with impunity even with so-called "regulation" in my experience. Now is as good as any (if not better!) to move to passive low-cost index funds.

-TheDDC

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willthrill81
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Re: Federal court tosses out fiduciary rule

Post by willthrill81 » Thu Mar 15, 2018 10:57 pm

“Never before has the mere act of being a salesperson — of recommending the purchase of your company’s product —been deemed an act that marks you as a fiduciary,” the business groups argued in court documents.

In a scathing majority opinion, Judge Edith Jones agreed.

“Only in DOL’s semantically created world do salespeople and insurance brokers have ‘authority’ or ‘responsibility’ to ‘render investment advice,’” Jones wrote in the court’s opinion.
I think the noteworthy part of their argument, one that everyone should be aware of, is that we're mostly talking about salespeople. Financial advisors are, for the most part, salespeople. That doesn't mean that they're good or bad, but that's who they are, and it's something to keep in mind. Like any salesperson, it's their job to sell what their company provides.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

JBTX
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Re: Federal court tosses out fiduciary rule

Post by JBTX » Fri Mar 16, 2018 12:33 am

willthrill81 wrote:
Thu Mar 15, 2018 10:57 pm
“Never before has the mere act of being a salesperson — of recommending the purchase of your company’s product —been deemed an act that marks you as a fiduciary,” the business groups argued in court documents.

In a scathing majority opinion, Judge Edith Jones agreed.

“Only in DOL’s semantically created world do salespeople and insurance brokers have ‘authority’ or ‘responsibility’ to ‘render investment advice,’” Jones wrote in the court’s opinion.
I think the noteworthy part of their argument, one that everyone should be aware of, is that we're mostly talking about salespeople. Financial advisors are, for the most part, salespeople. That doesn't mean that they're good or bad, but that's who they are, and it's something to keep in mind. Like any salesperson, it's their job to sell what their company provides.
Yeah, it is really shocking if you get to the crux of it, that the courts recognize that Financial Advisors are "salespeople" and have no obligation to act in their clients best interests. It is unfortunate that what is obvious to the courts (and to Bogleheads) is not obvious to most investors.

Judge Edith Jones.....hmmm....

mariezzz
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Re: Federal court tosses out fiduciary rule

Post by mariezzz » Fri Mar 16, 2018 12:36 am

Shocking. Absolutely shocking. To require professional and ethical behavior.

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iceport
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Re: Federal court tosses out fiduciary rule

Post by iceport » Fri Mar 16, 2018 1:22 am

JBTX wrote:
Fri Mar 16, 2018 12:33 am
willthrill81 wrote:
Thu Mar 15, 2018 10:57 pm
“Never before has the mere act of being a salesperson — of recommending the purchase of your company’s product —been deemed an act that marks you as a fiduciary,” the business groups argued in court documents.

In a scathing majority opinion, Judge Edith Jones agreed.

“Only in DOL’s semantically created world do salespeople and insurance brokers have ‘authority’ or ‘responsibility’ to ‘render investment advice,’” Jones wrote in the court’s opinion.
I think the noteworthy part of their argument, one that everyone should be aware of, is that we're mostly talking about salespeople. Financial advisors are, for the most part, salespeople. That doesn't mean that they're good or bad, but that's who they are, and it's something to keep in mind. Like any salesperson, it's their job to sell what their company provides.
Yeah, it is really shocking if you get to the crux of it, that the courts recognize that Financial Advisors are "salespeople" and have no obligation to act in their clients best interests. It is unfortunate that what is obvious to the courts (and to Bogleheads) is not obvious to most investors.
That's true. And that, in my opinion, is the crux of the enormous problem normal, every-day folks doing their best to invest their savings must contend with. They don't look at financial instruments as products, and therefore they don't consider the people selling them to be salesmen. So it's too easy to misinterpret the intentions of the "advisors."

When we walk into a store looking for a washing machine, we know exactly who we are dealing with on the other end of the transaction. When we walk into a fancy office looking for financial security, we generally have no idea what we're really buying and what motivates the people on the other side of the desk.

A friend from work asked what I thought about variable annuities. I had a lot to say about them, and how I thought they were especially inappropriate for us. Then I asked why he and his wife were even considering one. It turned out, this guy had made the mistake of trying to use the advisor from the third party administrator (Prudential) of our retirement plan as a financial advisor. As soon as I said the guy was nothing more than a salesman selling a product, the light bulb went off. As a savvy deal-maker in his own right, he got it immediately, and started noticing all the signs. But until I pointed out the obvious, it had never even dawned on him to think in terms of products being sold by salespeople.

They really should make anyone "advising" "clients" wear a big name tag with a big red "WARNING: SALES ASSOCIATE" label on it if they are unwilling to act as fiduciaries.

Mutual funds don't look much like washing machines.
"Discipline matters more than allocation.” ─William Bernstein

grettman
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Re: Federal court tosses out fiduciary rule

Post by grettman » Fri Mar 16, 2018 5:33 am

Thread will be locked for multiple reasons in 3...2..1

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blaugranamd
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Re: Federal court tosses out fiduciary rule

Post by blaugranamd » Fri Mar 16, 2018 5:44 am

JBTX wrote:
Fri Mar 16, 2018 12:33 am

Judge Edith Jones.....hmmm....
Is that Edward Jones' wife?
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samsoes
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Re: Federal court tosses out fiduciary rule

Post by samsoes » Fri Mar 16, 2018 6:02 am

blaugranamd wrote:
Fri Mar 16, 2018 5:44 am
JBTX wrote:
Fri Mar 16, 2018 12:33 am

Judge Edith Jones.....hmmm....
Is that Edward Jones' wife?
Wife, mother, or daughter.
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bottlecap
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Re: Federal court tosses out fiduciary rule

Post by bottlecap » Fri Mar 16, 2018 6:44 am

This is a court of appeals decision, so there was more than one judge deciding this.

You really can’t tell much from an article, because journalists don’t have much of a grasp on the law. However, what is in the article suggests there are legitimate reasons to overturn a "rule" that the justices believe is contrary to the law. To know whether the decision was well reasoned, you’d have to read the opinion.

That doesn’t mean something shouldn’t be done, it just means that it may not be able to be done by fiat.

Also note that the decision is reviewable, so it may not be over.

JT

peseta
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Re: Federal court tosses out fiduciary rule

Post by peseta » Fri Mar 16, 2018 8:23 am

What the popular press always ignores in these articles is the underlying separation of powers issues in cases like this one. The press writes as if the judges are making a policy call. Often, the case is not about what the policy should be, but who should be making that call. The dispute here, boiled down, is whether that decision can be made by the (here, previous) executive, or must be made by Congress (or, by Congress's decision not to act, a decision in and of itself). The court here decided along the latter lines. If Congress had itself passed a fiduciary rule, that would be a completely different set of facts.

peseta

UpperNwGuy
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Re: Federal court tosses out fiduciary rule

Post by UpperNwGuy » Fri Mar 16, 2018 8:33 am

If they don't have to act in their client's best interest, then they should not be allowed call themselves financial advisors. They should be required to call themselves financial sales specialists, and they should be required to disclose which of their recommended products result in their receiving compensation.

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mrc
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Re: Federal court tosses out fiduciary rule

Post by mrc » Fri Mar 16, 2018 8:49 am

This was a 2-1 decision by a three judge panel in one federal circuit. So, as they say, it's probably not over.

Here is the full opinion from the 5th Circuit website.
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willthrill81
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Re: Federal court tosses out fiduciary rule

Post by willthrill81 » Fri Mar 16, 2018 9:34 am

UpperNwGuy wrote:
Fri Mar 16, 2018 8:33 am
If they don't have to act in their client's best interest, then they should not be allowed call themselves financial advisors. They should be required to call themselves financial sales specialists, and they should be required to disclose which of their recommended products result in their receiving compensation.
In what other arena are salespeople specifically required to be titled as salespeople? None to my knowledge, and I don't think it would be legal to do so as it would be a restriction of free speech.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

dkturner
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Re: Federal court tosses out fiduciary rule

Post by dkturner » Fri Mar 16, 2018 9:35 am

UpperNwGuy wrote:
Fri Mar 16, 2018 8:33 am
If they don't have to act in their client's best interest, then they should not be allowed call themselves financial advisors. They should be required to call themselves financial sales specialists, and they should be required to disclose which of their recommended products result in their receiving compensation.
The DOL could have limited its regulations merely to requiring that individuals who are allowed to use the “suitability” standard,that stock brokers and insurance salesmen have been subjected to, are not allowed to state, or imply, that they are financial advisors. The DOL overreached and got its knuckles rapped. Anyone familiar with the economics that drive the brokerage and insurance industries should realize that the fiduciary standard simply cannot work there. If the federal government wanted to completely reorganize these lines of business the appropriate mechanism would be through legislation. Congress could have extended the protections of the fiduciary standard through its powers to regulate interstate commerce.

randydimera
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Re: Federal court tosses out fiduciary rule

Post by randydimera » Fri Mar 16, 2018 9:48 am

My mom still has about a million with edward jones and I have been nagging her to bring her stuff over to Vanguard, now I really have to push for it. How long do I have before the rule is overturned? Or is it overturned instantly? I am afraid that my financial adviser might try to take advantage of the money she has in there.

Also, vanguard wouldnt screw her over if she moved to them right? Im with them right now but idk if this fiduciary thing is still relevant with vanguard since we dont really have a "broker" you know?

bikechuck
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Re: Federal court tosses out fiduciary rule

Post by bikechuck » Fri Mar 16, 2018 9:58 am

The first line of defense against all of this is to be an educated investor. The second line of defense is to invest primarily or soley in low cost index funds. The third line of defense is to avoid market timing.

In other words follow the Boglehead approach to investing. Sadly, most people are not familiar with this approach and many people can and will be taken advantage of. Decisions like this one will not help.

keinodoggy
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Re: Federal court tosses out fiduciary rule

Post by keinodoggy » Fri Mar 16, 2018 9:59 am

UpperNwGuy wrote:
Fri Mar 16, 2018 8:33 am
If they don't have to act in their client's best interest, then they should not be allowed call themselves financial advisors. They should be required to call themselves financial sales specialists, and they should be required to disclose which of their recommended products result in their receiving compensation.
+1

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willthrill81
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Re: Federal court tosses out fiduciary rule

Post by willthrill81 » Fri Mar 16, 2018 10:18 am

randydimera wrote:
Fri Mar 16, 2018 9:48 am
My mom still has about a million with edward jones and I have been nagging her to bring her stuff over to Vanguard, now I really have to push for it. How long do I have before the rule is overturned? Or is it overturned instantly? I am afraid that my financial adviser might try to take advantage of the money she has in there.

Also, vanguard wouldnt screw her over if she moved to them right? Im with them right now but idk if this fiduciary thing is still relevant with vanguard since we dont really have a "broker" you know?
I don't have firsthand experience with Vanguard's advisory service, but all I've heard about them is good. They will of course recommend Vanguard funds, but that shouldn't be a problem.

In my view, if you really want the most objective financial advice you can get, you should pay for it with a fee-only advisor (or ask for it on this forum :D ).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

bsteiner
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Re: Federal court tosses out fiduciary rule

Post by bsteiner » Fri Mar 16, 2018 10:35 am

Here is the 5th Circuit opinion: http://www.ca5.uscourts.gov/opinions/pu ... 38-CV0.pdf.

Here is a recent 10th Circuit opinion that may or may not be relevant: https://www.ca10.uscourts.gov/opinions/17/17-3038.pdf.

autolycus
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Re: Federal court tosses out fiduciary rule

Post by autolycus » Fri Mar 16, 2018 12:08 pm

UpperNwGuy wrote:
Fri Mar 16, 2018 8:33 am
If they don't have to act in their client's best interest, then they should not be allowed call themselves financial advisors. They should be required to call themselves financial sales specialists, and they should be required to disclose which of their recommended products result in their receiving compensation.
Talk to the SEC about that. They theoretically have rules about who can use what titles but only really seem to care about the very specific term "investment advisor". Anything else appears to be fair game, which is, as you point out, a problem for many lay people.

adamthesmythe
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Re: Federal court tosses out fiduciary rule

Post by adamthesmythe » Fri Mar 16, 2018 12:13 pm

<sarcasm>

I'm glad that my freedoms are being protected.

</sarcasm>

oaks
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Re: Federal court tosses out fiduciary rule

Post by oaks » Fri Mar 16, 2018 12:14 pm

No problem, most of us don't use a financial advisor anyway. It is sad, but this is the world we live in.

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iceport
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Re: Federal court tosses out fiduciary rule

Post by iceport » Fri Mar 16, 2018 3:42 pm

There was a decent article over at M* on this.

Court Ruling Won't Stop Best-Interest Advice
Over the past 18 months, the DOL's rule accelerated an ongoing, irreversible trend: Clients are increasingly demanding advice in their best interests, and many advisors are changing their business models to deliver it. The rule has already spurred many financial institutions to examine their conflicts of interest and to take steps to provide best-interest advice.
As an investor, what does all this mean for you?

For at least a little bit longer, investors should be aware that the legal standards of conduct for advice given on investments in 401(k) and other defined contribution retirement accounts is higher than advice outside of these employer-sponsored accounts, such as with IRAs. To make things more complicated, registered investment advisers (RIAs--note the "e" rather than "o") and advisors at broker-dealers follow different standards.

In the short term, investors should keep asking questions such as, are you a fiduciary, and how does your firm manage conflicts of interest?
Note the actionable items here.
willthrill81 wrote:
Fri Mar 16, 2018 9:34 am
UpperNwGuy wrote:
Fri Mar 16, 2018 8:33 am
If they don't have to act in their client's best interest, then they should not be allowed call themselves financial advisors. They should be required to call themselves financial sales specialists, and they should be required to disclose which of their recommended products result in their receiving compensation.
In what other arena are salespeople specifically required to be titled as salespeople? None to my knowledge, and I don't think it would be legal to do so as it would be a restriction of free speech.
In what other arena is the distinction between goods and services so ubiquitously misunderstood? Folks don't think of mutual funds and annuities as products. And when they get advice from an advisor they, quite unsurprisingly, think they are somehow paying for advice that's in their best interest. They have absolutely no idea — not the faintest hint — that they are simply being led into buying goods that serve the sellers' interests over theirs.

Maybe real estate used to be somewhat similar years ago, when an agent for the seller(s) would be confused by unsuspecting buyers as working on their behalf? But even that industry has been reformed.
"Discipline matters more than allocation.” ─William Bernstein

david
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Re: Federal court tosses out fiduciary rule

Post by david » Fri Mar 16, 2018 5:29 pm

willthrill81 wrote:
Fri Mar 16, 2018 9:34 am
UpperNwGuy wrote:
Fri Mar 16, 2018 8:33 am
If they don't have to act in their client's best interest, then they should not be allowed call themselves financial advisors. They should be required to call themselves financial sales specialists, and they should be required to disclose which of their recommended products result in their receiving compensation.
In what other arena are salespeople specifically required to be titled as salespeople? None to my knowledge, and I don't think it would be legal to do so as it would be a restriction of free speech.
Business speech can be limited much more than other (e.g., political) speech. It's the reason I can't market myself as a doctor. There is significant consumer confusion in this arena about how their "advisers" are paid and in whose interest they are acting on behalf of. None of that exists, e.g., if you go to a clothing store or shop for a car. You see it all the time in the insurance and investment arena. Because at the clothing store or the car dealer doesn't call themselves "advisers."

skepticalobserver
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Re: Federal court tosses out fiduciary rule

Post by skepticalobserver » Fri Mar 16, 2018 6:08 pm

Th Fifth Circuit has the rep for being the most conservative federal circuit. That being said, the promotion of the prospect of fiduciariness by non-registered investment advisors eager to cash in on the rule smacked of abuse.

vested1
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Re: Federal court tosses out fiduciary rule

Post by vested1 » Fri Mar 16, 2018 6:48 pm

willthrill81 wrote:
Fri Mar 16, 2018 9:34 am
UpperNwGuy wrote:
Fri Mar 16, 2018 8:33 am
If they don't have to act in their client's best interest, then they should not be allowed call themselves financial advisors. They should be required to call themselves financial sales specialists, and they should be required to disclose which of their recommended products result in their receiving compensation.
In what other arena are salespeople specifically required to be titled as salespeople? None to my knowledge, and I don't think it would be legal to do so as it would be a restriction of free speech.
I belong to another forum whose members retired from the same megacorp I retired from. Members ask questions related to health coverage and retirement related issues. Recently someone started a new thread asking what other members do with their life savings, and the responses were chilling. I lost count of the number who responded that Edward Jones was the best, and/or their specific advisor was wonderful, only charging 1% or even higher. They were repeating the same familiar spiel they had been fed by the sharks who were feasting off of them.

The difference between a financial advisor charging an AUM fee and say, a car salesman, is that it is not a one time event, as when the salesman screws over someone on the sale of a car. A financial advisor who is unscrupulous can drain a retirement account over the lifetime of their client, causing lasting harm. Most people are wary of a car salesman, but very few are aware of the pitfalls of paying high fees to an advisor with a quota to fill.

It's one thing to say "let the buyer beware" (not saying you are), but the nature of investment knowledge makes it intimidating to most people, and should thus have greater safeguards.

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DaftInvestor
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Re: Federal court tosses out fiduciary rule

Post by DaftInvestor » Fri Mar 16, 2018 7:15 pm

vested1 wrote:
Fri Mar 16, 2018 6:48 pm
willthrill81 wrote:
Fri Mar 16, 2018 9:34 am
UpperNwGuy wrote:
Fri Mar 16, 2018 8:33 am
If they don't have to act in their client's best interest, then they should not be allowed call themselves financial advisors. They should be required to call themselves financial sales specialists, and they should be required to disclose which of their recommended products result in their receiving compensation.
In what other arena are salespeople specifically required to be titled as salespeople? None to my knowledge, and I don't think it would be legal to do so as it would be a restriction of free speech.
I belong to another forum whose members retired from the same megacorp I retired from. Members ask questions related to health coverage and retirement related issues. Recently someone started a new thread asking what other members do with their life savings, and the responses were chilling. I lost count of the number who responded that Edward Jones was the best, and/or their specific advisor was wonderful, only charging 1% or even higher. They were repeating the same familiar spiel they had been fed by the sharks who were feasting off of them.

The difference between a financial advisor charging an AUM fee and say, a car salesman, is that it is not a one time event, as when the salesman screws over someone on the sale of a car. A financial advisor who is unscrupulous can drain a retirement account over the lifetime of their client, causing lasting harm. Most people are wary of a car salesman, but very few are aware of the pitfalls of paying high fees to an advisor with a quota to fill.

It's one thing to say "let the buyer beware" (not saying you are), but the nature of investment knowledge makes it intimidating to most people, and should thus have greater safeguards.
You might call a car salesman a salesman but looking at the title on the business card of the guy that sold me my last car it says sales consultant ... and the guy that tried to rip me off when I signed the paperwok by selling me an expensive extended warranty has a title of finance-manager. The guy that sells B2B IT gear is a "Account Manager" but we all somehow know he's a sales guy. Yet people need to be told a financial advisor is a saleman?
Insurance salesman - I never talked to one but I bet their business card doesn't sale insurance salesman either.
People need to educate themselves.

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willthrill81
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Re: Federal court tosses out fiduciary rule

Post by willthrill81 » Fri Mar 16, 2018 7:28 pm

david wrote:
Fri Mar 16, 2018 5:29 pm
willthrill81 wrote:
Fri Mar 16, 2018 9:34 am
UpperNwGuy wrote:
Fri Mar 16, 2018 8:33 am
If they don't have to act in their client's best interest, then they should not be allowed call themselves financial advisors. They should be required to call themselves financial sales specialists, and they should be required to disclose which of their recommended products result in their receiving compensation.
In what other arena are salespeople specifically required to be titled as salespeople? None to my knowledge, and I don't think it would be legal to do so as it would be a restriction of free speech.
Business speech can be limited much more than other (e.g., political) speech. It's the reason I can't market myself as a doctor. There is significant consumer confusion in this arena about how their "advisers" are paid and in whose interest they are acting on behalf of. None of that exists, e.g., if you go to a clothing store or shop for a car. You see it all the time in the insurance and investment arena. Because at the clothing store or the car dealer doesn't call themselves "advisers."
That's a good point. I would point out that saying that one cannot call oneself one thing (i.e. doctor, licensed plumber) is not the same as saying that one must be called something (i.e. salesperson). Would all of those who have securities licenses (insurance licenses?) be legally required to have and use the title of salesperson? What if a person didn't include that on their business card? What if they didn't introduce themselves as salespeople? Enforcing this would seemingly turn into a legal nightmare. It would be far easier to say that the term "advisor" cannot be used than to say that the term "salesperson" must be.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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willthrill81
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Re: Federal court tosses out fiduciary rule

Post by willthrill81 » Fri Mar 16, 2018 7:32 pm

DaftInvestor wrote:
Fri Mar 16, 2018 7:15 pm
vested1 wrote:
Fri Mar 16, 2018 6:48 pm
willthrill81 wrote:
Fri Mar 16, 2018 9:34 am
UpperNwGuy wrote:
Fri Mar 16, 2018 8:33 am
If they don't have to act in their client's best interest, then they should not be allowed call themselves financial advisors. They should be required to call themselves financial sales specialists, and they should be required to disclose which of their recommended products result in their receiving compensation.
In what other arena are salespeople specifically required to be titled as salespeople? None to my knowledge, and I don't think it would be legal to do so as it would be a restriction of free speech.
I belong to another forum whose members retired from the same megacorp I retired from. Members ask questions related to health coverage and retirement related issues. Recently someone started a new thread asking what other members do with their life savings, and the responses were chilling. I lost count of the number who responded that Edward Jones was the best, and/or their specific advisor was wonderful, only charging 1% or even higher. They were repeating the same familiar spiel they had been fed by the sharks who were feasting off of them.

The difference between a financial advisor charging an AUM fee and say, a car salesman, is that it is not a one time event, as when the salesman screws over someone on the sale of a car. A financial advisor who is unscrupulous can drain a retirement account over the lifetime of their client, causing lasting harm. Most people are wary of a car salesman, but very few are aware of the pitfalls of paying high fees to an advisor with a quota to fill.

It's one thing to say "let the buyer beware" (not saying you are), but the nature of investment knowledge makes it intimidating to most people, and should thus have greater safeguards.
You might call a car salesman a salesman but looking at the title on the business card of the guy that sold me my last car it says sales consultant ... and the guy that tried to rip me off when I signed the paperwok by selling me an expensive extended warranty has a title of finance-manager. The guy that sells B2B IT gear is a "Account Manager" but we all somehow know he's a sales guy. Yet people need to be told a financial advisor is a saleman?
Insurance salesman - I never talked to one but I bet their business card doesn't sale insurance salesman either.
People need to educate themselves.
Precisely. I know of no profession whose members refer to themselves as salespeople, likely due to the associated stigma. Forcing a title onto an entire profession would be, to my knowledge, unprecedented.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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iceport
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Re: Federal court tosses out fiduciary rule

Post by iceport » Fri Mar 16, 2018 7:46 pm

DaftInvestor wrote:
Fri Mar 16, 2018 7:15 pm
vested1 wrote:
Fri Mar 16, 2018 6:48 pm
willthrill81 wrote:
Fri Mar 16, 2018 9:34 am
UpperNwGuy wrote:
Fri Mar 16, 2018 8:33 am
If they don't have to act in their client's best interest, then they should not be allowed call themselves financial advisors. They should be required to call themselves financial sales specialists, and they should be required to disclose which of their recommended products result in their receiving compensation.
In what other arena are salespeople specifically required to be titled as salespeople? None to my knowledge, and I don't think it would be legal to do so as it would be a restriction of free speech.
I belong to another forum whose members retired from the same megacorp I retired from. Members ask questions related to health coverage and retirement related issues. Recently someone started a new thread asking what other members do with their life savings, and the responses were chilling. I lost count of the number who responded that Edward Jones was the best, and/or their specific advisor was wonderful, only charging 1% or even higher. They were repeating the same familiar spiel they had been fed by the sharks who were feasting off of them.

The difference between a financial advisor charging an AUM fee and say, a car salesman, is that it is not a one time event, as when the salesman screws over someone on the sale of a car. A financial advisor who is unscrupulous can drain a retirement account over the lifetime of their client, causing lasting harm. Most people are wary of a car salesman, but very few are aware of the pitfalls of paying high fees to an advisor with a quota to fill.

It's one thing to say "let the buyer beware" (not saying you are), but the nature of investment knowledge makes it intimidating to most people, and should thus have greater safeguards.
You might call a car salesman a salesman but looking at the title on the business card of the guy that sold me my last car it says sales consultant ... and the guy that tried to rip me off when I signed the paperwok by selling me an expensive extended warranty has a title of finance-manager. The guy that sells B2B IT gear is a "Account Manager" but we all somehow know he's a sales guy. Yet people need to be told a financial advisor is a saleman?
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Re: Federal court tosses out fiduciary rule

Post by motorcyclesarecool » Fri Mar 16, 2018 8:08 pm

This is part of why I’ve always strongly felt that meaningful disclosure was a better, more achievable goal than trying to turn the wolf into a sheepdog. Maybe like the Surgeon General warning?
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Re: Federal court tosses out fiduciary rule

Post by pkcrafter » Fri Mar 16, 2018 10:51 pm

Wow, how much did EJ have to pay for this?
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Re: Federal court tosses out fiduciary rule

Post by vested1 » Sat Mar 17, 2018 7:30 am

willthrill81 wrote:
Fri Mar 16, 2018 7:32 pm
DaftInvestor wrote:
Fri Mar 16, 2018 7:15 pm
vested1 wrote:
Fri Mar 16, 2018 6:48 pm
willthrill81 wrote:
Fri Mar 16, 2018 9:34 am
UpperNwGuy wrote:
Fri Mar 16, 2018 8:33 am
If they don't have to act in their client's best interest, then they should not be allowed call themselves financial advisors. They should be required to call themselves financial sales specialists, and they should be required to disclose which of their recommended products result in their receiving compensation.
In what other arena are salespeople specifically required to be titled as salespeople? None to my knowledge, and I don't think it would be legal to do so as it would be a restriction of free speech.
I belong to another forum whose members retired from the same megacorp I retired from. Members ask questions related to health coverage and retirement related issues. Recently someone started a new thread asking what other members do with their life savings, and the responses were chilling. I lost count of the number who responded that Edward Jones was the best, and/or their specific advisor was wonderful, only charging 1% or even higher. They were repeating the same familiar spiel they had been fed by the sharks who were feasting off of them.

The difference between a financial advisor charging an AUM fee and say, a car salesman, is that it is not a one time event, as when the salesman screws over someone on the sale of a car. A financial advisor who is unscrupulous can drain a retirement account over the lifetime of their client, causing lasting harm. Most people are wary of a car salesman, but very few are aware of the pitfalls of paying high fees to an advisor with a quota to fill.

It's one thing to say "let the buyer beware" (not saying you are), but the nature of investment knowledge makes it intimidating to most people, and should thus have greater safeguards.
You might call a car salesman a salesman but looking at the title on the business card of the guy that sold me my last car it says sales consultant ... and the guy that tried to rip me off when I signed the paperwok by selling me an expensive extended warranty has a title of finance-manager. The guy that sells B2B IT gear is a "Account Manager" but we all somehow know he's a sales guy. Yet people need to be told a financial advisor is a saleman?
Insurance salesman - I never talked to one but I bet their business card doesn't sale insurance salesman either.
People need to educate themselves.
Precisely. I know of no profession whose members refer to themselves as salespeople, likely due to the associated stigma. Forcing a title onto an entire profession would be, to my knowledge, unprecedented.
I wasn't arguing the merits or semantics of re-titling financial advisors. I was trying, and failing to make the point that "Buyer beware", as in "You should have known better" has less meaning, and is more mean spirited when life savings are involved. Like many others, I entered my initial retirement from Megacorp with almost no knowledge about the pitfalls of high fees and inappropriate advice. Luckily, I continued to work for another 8 years, so my hard knocks education in mediocre performance at a premium cost when using a financial advisor wasn't catastrophic.

There is a strong argument for including investment education in the curriculum beginning at the high school level, and for optional education encouraged by employers concerning retirement planning.

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Re: Federal court tosses out fiduciary rule

Post by willthrill81 » Sat Mar 17, 2018 9:48 am

vested1 wrote:
Sat Mar 17, 2018 7:30 am
I wasn't arguing the merits or semantics of re-titling financial advisors. I was trying, and failing to make the point that "Buyer beware", as in "You should have known better" has less meaning, and is more mean spirited when life savings are involved. Like many others, I entered my initial retirement from Megacorp with almost no knowledge about the pitfalls of high fees and inappropriate advice. Luckily, I continued to work for another 8 years, so my hard knocks education in mediocre performance at a premium cost when using a financial advisor wasn't catastrophic.

There is a strong argument for including investment education in the curriculum beginning at the high school level, and for optional education encouraged by employers concerning retirement planning.
I agree wholeheartedly that we aren't doing nearly enough to provide young people with financial education, though I think that many in that field would vehemently object to much of what we Bogleheads believe that they should be taught (i.e. low cost index funds over high cost active funds).

While I don't think that a blanket "buyer beware" is optimal, I am amazed that most people work most of their adult lives for money but then do not educate themselves on how to manage that money. I'm not sure if anything can be done to meaningfully change this seeming apathy.
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Re: Federal court tosses out fiduciary rule

Post by BolderBoy » Sat Mar 17, 2018 10:09 am

DaftInvestor wrote:
Fri Mar 16, 2018 7:15 pm
The guy that sells B2B IT gear is a "Account Manager" but we all somehow know he's a sales guy. Yet people need to be told a financial advisor is a saleman?
"BUD: (an old story between them) Look Dad, I'm not a salesman. How many times I gotta tell you I'm an account executive, and pretty soon I'm going to the investment banking side of the firm.

CARL: You get on the phone and ask strangers for their money, right? You're a salesman."

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Re: Federal court tosses out fiduciary rule

Post by iceport » Sat Mar 17, 2018 10:33 am

willthrill81 wrote:
Sat Mar 17, 2018 9:48 am
I agree wholeheartedly that we aren't doing nearly enough to provide young people with financial education, though I think that many in that field would vehemently object to much of what we Bogleheads believe that they should be taught (i.e. low cost index funds over high cost active funds).

While I don't think that a blanket "buyer beware" is optimal, I am amazed that most people work most of their adult lives for money but then do not educate themselves on how to manage that money. I'm not sure if anything can be done to meaningfully change this seeming apathy.
I don't think "apathy" is at work with the vast majority of folks. Intimidation is probably a far more common deterrent to becoming better informed.

But aside from all that, there is a huge faction of the population with the interest and motivation to become better informed, but who have no idea where to find reliable (accurate and objective) information. I've seen hundreds in my own life. They want to learn, but they end up being "schooled" by salespeople! That's right, not only does the small investor lack the most basic awareness of the true nature of the relationship they have with their "advisor," but the very same salespeople masquerade as educators.

I took a retirement readiness "class" a while ago that provided a shallow sampling of actual information on a variety of topics. But by the end of the class it was blatantly obvious (to me, anyway) that the introduction to the topics was intended to show how complicated it all was to do it yourself, encouraging the "students" to become clients of the "teacher," who was actually a CFP doing business as a "financial consultant." And this was all under the umbrella of my town's continuing education program, taught in a town school.

Then there are all the "classes" put on by insurance companies through employers or other employee organizations. The information can be accurate and informative at first, but inevitably, as time goes by and trust is earned, the lesson turns to the many splendid benefits of variable annuities. The same is true of the dinner talks by advisors under the guise of "educators." I went to one last summer, and it was unbelievably frustrating. The "instructor" was absolutely shameless in throwing out misleading and downright bogus claims. Intelligent, educated professionals I sat near were eating up the pitch for equity indexed annuities, hook, line and sinker.

I'm all for better financial education. But unless and until it builds a critical mass capable of countering the well-funded, insidious sales pitches disguised as education, something else is needed. Mandatory disclosures would be a huge help, and they hardly seem unfair or overly burdensome. (Of course, predatory business would dry up. But isn't that the whole point?)
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Re: Federal court tosses out fiduciary rule

Post by jny323 » Sat Mar 17, 2018 10:41 am

willthrill81 wrote:
Fri Mar 16, 2018 9:34 am
UpperNwGuy wrote:
Fri Mar 16, 2018 8:33 am
If they don't have to act in their client's best interest, then they should not be allowed call themselves financial advisors. They should be required to call themselves financial sales specialists, and they should be required to disclose which of their recommended products result in their receiving compensation.
In what other arena are salespeople specifically required to be titled as salespeople? None to my knowledge, and I don't think it would be legal to do so as it would be a restriction of free speech.

There's a word for convincing someone to pay you for something, when you never have any intention of delivering the promised goods/services: fraud. Free speech does not give you the freedom to sell something by misrepresenting what you are selling.

Someone who holds a title ("advisor") that implies one's primary responsibility is to provide good advice to a client who hires them for the "advsior" role and poses as if that is what they are doing, but then prioritizes the interest of anyone else above their client is not acting in an advisory role, is on some level committing an act of fraud.

Whether or not this constitutes fraud in the legal sense, it is definitely an act of fraud in the literal sense. It's unethical to pose as someone whose primary responsibility is to offer good advice when one's actions are driven by ulterior motives (i.e. fees for directing customers to certain funds that may not be in the customer's best financial interest).

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Re: Federal court tosses out fiduciary rule

Post by dkturner » Sat Mar 17, 2018 2:47 pm

skepticalobserver wrote:
Fri Mar 16, 2018 6:08 pm
Th Fifth Circuit has the rep for being the most conservative federal circuit. That being said, the promotion of the prospect of fiduciariness by non-registered investment advisors eager to cash in on the rule smacked of abuse.
It will be interesting to see if the DOL appeals this ruling or agrees to modify, or possibly abandon, the rule. It may be too late for some brokerage customers who are dealing with firms that won’t talk to them unless they agree to a management fee based account. These firms might not back off even if the fiduciary rule is abandoned, because they would much rather have the predictable management fee revenue than sporadic trade commissions. The smarter brokers began moving in this direction long before the fiduciary rule was proposed.

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Re: Federal court tosses out fiduciary rule

Post by willthrill81 » Sat Mar 17, 2018 3:01 pm

iceport wrote:
Sat Mar 17, 2018 10:33 am
willthrill81 wrote:
Sat Mar 17, 2018 9:48 am
I agree wholeheartedly that we aren't doing nearly enough to provide young people with financial education, though I think that many in that field would vehemently object to much of what we Bogleheads believe that they should be taught (i.e. low cost index funds over high cost active funds).

While I don't think that a blanket "buyer beware" is optimal, I am amazed that most people work most of their adult lives for money but then do not educate themselves on how to manage that money. I'm not sure if anything can be done to meaningfully change this seeming apathy.
I don't think "apathy" is at work with the vast majority of folks. Intimidation is probably a far more common deterrent to becoming better informed.

But aside from all that, there is a huge faction of the population with the interest and motivation to become better informed, but who have no idea where to find reliable (accurate and objective) information.
My experience has been that with a critical eye and a little digging online, it's pretty easy to get at least halfway decent information.

I really do think that apathy is at least one factor at work here. I've tried to speak with several family members and some friends about issues related to investing, retirement, etc., and it largely falls on deaf ears, even though they know that I know what I'm talking about. They just don't seem to care. People seem to be too focused on the here and now.
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Re: Federal court tosses out fiduciary rule

Post by willthrill81 » Sat Mar 17, 2018 3:06 pm

jny323 wrote:
Sat Mar 17, 2018 10:41 am
willthrill81 wrote:
Fri Mar 16, 2018 9:34 am
UpperNwGuy wrote:
Fri Mar 16, 2018 8:33 am
If they don't have to act in their client's best interest, then they should not be allowed call themselves financial advisors. They should be required to call themselves financial sales specialists, and they should be required to disclose which of their recommended products result in their receiving compensation.
In what other arena are salespeople specifically required to be titled as salespeople? None to my knowledge, and I don't think it would be legal to do so as it would be a restriction of free speech.

There's a word for convincing someone to pay you for something, when you never have any intention of delivering the promised goods/services: fraud. Free speech does not give you the freedom to sell something by misrepresenting what you are selling.
As you state, I'm not sure that simply using the title of "advisor" implies that one is acting in a legally binding fiduciary capacity. The basic definition of the term is simply one who gives advice.

I don't know that I would say that all that these "advisors" do is unethical because I think that many of them genuinely believe that they are doing what is best for their clients. Remember that the training they have received has, in most cases, come entirely from the brokerage firms, not from this forum. Garbage in, garbage out.
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Re: Federal court tosses out fiduciary rule

Post by sergeant » Sat Mar 17, 2018 4:40 pm

randydimera wrote:
Fri Mar 16, 2018 9:48 am
My mom still has about a million with edward jones and I have been nagging her to bring her stuff over to Vanguard, now I really have to push for it. How long do I have before the rule is overturned? Or is it overturned instantly? I am afraid that my financial adviser might try to take advantage of the money she has in there.

Also, vanguard wouldnt screw her over if she moved to them right? Im with them right now but idk if this fiduciary thing is still relevant with vanguard since we dont really have a "broker" you know?
Where to begin? It would take me too long to address all the concerns listed so I will just say read the wiki and keep learning.

Long story short: She would probably be much better served having that million at Vanguard. Both of you are not going to be "screwed over" by Vanguard. The "screwing over" usually done at EJ is by high fees and account churning. Vanguard doesn't do that.
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Re: Federal court tosses out fiduciary rule

Post by DWesterb2iz2 » Sat Mar 17, 2018 6:52 pm

Someone Barry Ritholtz interviewed awhile back disagreed with the rule that made every financial advisor act as a fiduciary.

He thought instead it would be enough to pass a law that financial advisors have to clearly state whether they are or are not fiduciaries.
Last edited by DWesterb2iz2 on Sat Mar 17, 2018 7:02 pm, edited 4 times in total.

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Re: Federal court tosses out fiduciary rule

Post by abuss368 » Sat Mar 17, 2018 6:55 pm

It is amazing how the mistakes and errors of the past are already forgotten. Until the next time.
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Re: Federal court tosses out fiduciary rule

Post by jdb » Sat Mar 17, 2018 7:18 pm

I am also aghast at outcome disallowing what seems like minimal consumer protection in financial arena. But maybe a little of King Canute trying to hold back the tide. Saw wonderful advertisement by Wilmington Trust in WSJ or NYT, stating that their advisors adhered to fiduciary standards. If I was looking for financial advisor would be calling Wilmington Truat or another fiduciary organization like US Trust on Monday. Think most investors with substantial assets who want a financial advisor have learned to look for fiduciaries. Or would hope so. Good luck.
Last edited by jdb on Sat Mar 17, 2018 7:53 pm, edited 1 time in total.

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Re: Federal court tosses out fiduciary rule

Post by Helo80 » Sat Mar 17, 2018 7:35 pm

jny323 wrote:
Sat Mar 17, 2018 10:41 am
Whether or not this constitutes fraud in the legal sense, it is definitely an act of fraud in the literal sense. It's unethical to pose as someone whose primary responsibility is to offer good advice when one's actions are driven by ulterior motives (i.e. fees for directing customers to certain funds that may not be in the customer's best financial interest).


With this paragraph, you are also condemning the entire business consulting industry.

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Re: Federal court tosses out fiduciary rule

Post by pkcrafter » Sun Mar 18, 2018 1:55 pm

I wonder if this rule has any impact on SEC registered investment advisors (RIAs).

Michael Kitces explains the four different types of fiduciary FAs here. They are confusing enough, and he wrote It in January. Are SEC adviosrs part of this new decision?

https://www.kitces.com/blog/the-4-diffe ... duciaries/

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Re: Federal court tosses out fiduciary rule

Post by getrichslowly » Sun Mar 18, 2018 2:24 pm

willthrill81 wrote:
Fri Mar 16, 2018 9:34 am
UpperNwGuy wrote:
Fri Mar 16, 2018 8:33 am
If they don't have to act in their client's best interest, then they should not be allowed call themselves financial advisors. They should be required to call themselves financial sales specialists, and they should be required to disclose which of their recommended products result in their receiving compensation.
In what other arena are salespeople specifically required to be titled as salespeople? None to my knowledge, and I don't think it would be legal to do so as it would be a restriction of free speech.
Free speech does not cover mispresentation. I can't dress up like a policeman and start acting like a policeman if I'm not a policeman.

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Re: Federal court tosses out fiduciary rule

Post by willthrill81 » Sun Mar 18, 2018 2:29 pm

getrichslowly wrote:
Sun Mar 18, 2018 2:24 pm
willthrill81 wrote:
Fri Mar 16, 2018 9:34 am
UpperNwGuy wrote:
Fri Mar 16, 2018 8:33 am
If they don't have to act in their client's best interest, then they should not be allowed call themselves financial advisors. They should be required to call themselves financial sales specialists, and they should be required to disclose which of their recommended products result in their receiving compensation.
In what other arena are salespeople specifically required to be titled as salespeople? None to my knowledge, and I don't think it would be legal to do so as it would be a restriction of free speech.
Free speech does not cover mispresentation. I can't dress up like a policeman and start acting like a policeman if I'm not a policeman.
That's true, but you can dress up like a teacher, an engineer, a manager, etc. with no legal ramifications. Calling yourself an advisor, literally "one who gives advice," when you stand to benefit from the advice given is not necessarily legal misrepresentation.
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Re: Federal court tosses out fiduciary rule

Post by Earl Lemongrab » Mon Mar 19, 2018 12:41 am

willthrill81 wrote:
Sun Mar 18, 2018 2:29 pm
That's true, but you can dress up like a teacher, an engineer, a manager, etc. with no legal ramifications. Calling yourself an advisor, literally "one who gives advice," when you stand to benefit from the advice given is not necessarily legal misrepresentation.
There are many professions where you can't play pretend in performance of the duties. Doctor. Attorney.
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Re: Federal court tosses out fiduciary rule

Post by Diogenes » Mon Mar 19, 2018 1:37 am

peseta wrote:
Fri Mar 16, 2018 8:23 am
What the popular press always ignores in these articles is the underlying separation of powers issues in cases like this one. The press writes as if the judges are making a policy call. Often, the case is not about what the policy should be, but who should be making that call. The dispute here, boiled down, is whether that decision can be made by the (here, previous) executive, or must be made by Congress (or, by Congress's decision not to act, a decision in and of itself). The court here decided along the latter lines. If Congress had itself passed a fiduciary rule, that would be a completely different set of facts.

peseta
This is of course exactly the issue. In the ruling, the 5th Circuit is not saying it's bad to have this protection at all. Let Congress do it the right way. What we have here is another executive overreach attempt from 2016 being corrected. Government is not set up to have significant (even if sensible) major rules that would change an industry pushed out as edicts. A shortcut was tried and failed. We have three branches of government for good reason. A major change to the financial industry in the U.S. caused by a rule by the Department of Labor? Not a great idea. Congress legislates major changes, however imperfectly.

The Judge in New Orleans who wrote the opinion commented that it was "arbitrary and capricious exercises of administrative power."
The decision makes for attention-grabbing headlines but is really not so dramatic or unexpected. The DOL cannot unilaterally appeal this, that would be a call for elsewhere in the Executive Branch.

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