Regulatory Spotlight: DOL’s Fiduciary and Independent Contractor Rules

For much of this year, our advocacy team has focused its attention on dueling Department of Labor rules – both of which have the potential to have a transformative impact on your business and the clients you serve. The reality, however, is that we’ve been fighting these battles for the better part of a decade.  

Indeed, no matter how reasoned the industry and other groups are with their feedback, the DOL was determined to press forward with each – even though doing so largely hurts the very people they purportedly want to protect: everyday Americans. So, it did.  

The Independent Contractor Rule

At the beginning of the year, the Department released a final independent contractor rule. While our industry is not the target, we could feel the implications.  

Financial advisors have a choice. They could be an advisor employee at a financial services firm or go independent, allowing them to operate their own businesses and best serve their clients as they see fit. Independent financial advisors have opted for the latter. However, the DOL’s independent contractor rule could take this choice away.  

If it is successful, millions of Main Street investors will lose access to quality professional financial advice. Our members made it clear that they do not want to be employees, with many saying they would retire or consider leaving the business fi they’re forced to become an employee. We have repeatedly communicated this to the DOL, explaining the harm the rule could inflict on the tens of thousands of independent financial advisors who are small business owners in their communities. 

That feedback was ignored. Therefore, we had no choice but to file a lawsuit with coalition partners to overturn this rulemaking. At this point, we await the court’s decision. Timing is at the court’s discretion.

Fiduciary Rule

Meanwhile, the DOL finalized a new fiduciary rule in April, redefining who qualifies as an “investment advice fiduciary” under ERISA. In the lead-up, we worked hard to thwart this effort, issuing calls to action for our members to contact their Congressional representatives and the DOL to explain how the new rule negatively impacts them and their clients. 

For one, it makes it harder for investors to work with an advisor and adds significant paperwork and red tape. It also attempts to sidestep a 2016 federal court ruling that vacated a similar proposal. And, finally, it’s the product of a rushed rulemaking process, which left the Department with less time to review the thousands of comments it received from the public. 

Unfortunately, our deep reservations – which reflected the views of the broader industry– fell on deaf ears. The DOL finalized the rule anyway. 

Because of this, we again decided to take the necessary step to seek relief in the courts. In June, via a plaintiff-intervenors’ complaint, we joined a lawsuit challenging the rule in the Northern District of Texas. 

Thankfully, the court issued a stay in our case, preventing the rule from going into effect. . That followed a similar judgment days earlier in another Texas court. Notably, the judge in that case pointed out in the stay that the 2024 version of the fiduciary rule “suffers from many of the same problems” as the one vacated years earlier. DOL has appealed the stays from both district court decisions to the Fifth Circuit United States Court of Appeals, the same appellate court that struct down the 2016 Fiduciary Rule. Again, the timing of a decision is at the discretion of the court.

The More Things Change…

Almost 200 years ago, French writer Jean-Baptiste Alphonse Karr wrote, “plus ça change, plus c’est la même chose” — the more things change, the more they stay the same. It’s a safe bet he didn’t have FSI and the DOL in mind when he wrote those words. But they apply.  

We’ve been engaging the DOL on these issues throughout much of FSI’s 20 years of existence. Even so, no matter how long it takes, we’ll continue to fight the good fight to get our members so they can focus on operating their businesses and serving their clients.