Multnomah Group’s annual Regulatory Update included information related to two Department of Labor (DOL) rules issued over the past 18 months: the fiduciary rule and the ESG investing rule. The update noted that both rules were politically charged and immediately challenged in court. Both have an uncertain future as a new administration takes office.
The fiduciary rule has been challenged after several insurance associations filed a lawsuit to vacate the rule. Similarly, the ESG rule was challenged by several Republican State Attorney Generals. The fiduciary rule was to go into effect this September, but the judge in that case issued a nationwide preliminary injunction that effectively barred the rule from taking effect. The ESG case was initially dismissed but was recently revived as the appellate court remanded it back to the lower court for further review.
The outcome of this month’s election and upcoming change of leadership will effectively end both outstanding cases and likely result in both rules being rescinded. What does this mean going forward? We can’t say for sure, but here are some potential scenarios:
ESG Investing: The DOL under the previous Trump administration issued its own ESG rule that was more stringent than the current rule. However, under that rule, a retirement plan could still include ESG investments if the pecuniary considerations used to select and monitor it were the same as for other investments.
Our recommendation relative to ESG investing has been the same under both rules:
- You may offer ESG-focused funds, but we recommend against a lineup that exclusively offers ESG-focused funds;
- We do not recommend using ESG-focused funds as your default investment option. While the current rule would allow this, the rule under the previous Trump administration did not.
Fiduciary Rule: The fiduciary rule will likely fade away under the new administration. Insurance groups claimed that sufficient regulation was already in place and the rule would dissuade advisors from providing much-needed advice. They also claimed that the rule was essentially the same as a previous rule that was struck down in 2018. It’s not clear if the fiduciary rule would have survived even if Vice President Harris had won, as the judge indicated in his injunction that plaintiffs had a strong likelihood of prevailing.
We will continue to monitor the future of both of these rules and the outcomes of the existing litigation challenging each rule.
Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.