The recent news about a Texas Federal District Court striking down a fiduciary rule has created some confusion. This article explains the court’s decision and its meaning to financial professionals.

During the first Trump administration, the Department of Labor (DOL) issued a Prohibited Transition Exemption (PTE 2020-02) that included, in its preamble, an expanded interpretation of the fiduciary definition—the regulatory 5-part test for determining whether a recommendation is fiduciary advice. The PTE then created, with conditions, an exemption for conflicted recommendations. A conflicted recommendation includes, for example, a recommendation to a 401(k) plan participant to take the benefits out of the plan and to roll them over to an IRA with the financial professional. The conflict is that the financial professional will earn compensation from the recommendation, e.g., commissions or fees from the rollover IRA.