In fact, some analysts think that the financial services industry may be the most impacted by a change to Chevron…. Advisors may want to contact their regulatory and legal counsel after the Court’s arguments to determine how their opinion may impact the scope of regulation over financial advisors.
Three major supreme court opinions may be coming soon that could have significant implications for financial advisors and they may not be the ones you’ve heard about. Way back in 2023, we wrote about potential cases that could change how financial advisors practice. These cases may be more significant: they may reduce the ability of agency regulators to oversee, investigate, and fine financial advisors and institutions.
One of those cases involves the Consumer Finance Protection Bureau (CFPB). One might think that any changes to the CFPB would have minimal or tangential implications for financial advisors, mostly in how associate financial institutions could be regulated with regard to consumer banking and credit scores. Yet, the CFPB case involves much more than that. When it was created, Congress used some unusual financing strategies for funding the CFPB. Now, some have sued suggesting that those financing strategies exceeded congress’s powers.[1]
Yet, two additional cases pending before the Supreme Court could have an even bigger impact on the way in which financial advisors are regulated. Because those cases involve some technical legal language, they may have failed to catch some advisor’s attention. The two cases, Loper Bright Enters v. Raimondo and Relentless Inc. v. Dept of Commerce were argued on January 17, 2024.[2] Given that Raimondo is the current Secretary of Commerce, the two cases share a common defendant and a common claim. Therefore, the Supreme Court has scheduled them to be heard on the same day. Usually, decisions will issue from the Court in the next term, here June or July of 2024.
At issue in both cases is what is referred to as the Chevron doctrine (based on the name of the opinion wherein the doctrine was first announced). Chevron “addressed the proper standards for courts to apply in reviewing agency decisions that depend on interpreting acts of Congress. Chevron holds that, so long as federal agencies stay within the clear bounds of the law, the courts must respect the agencies’ expertise and their reasonable interpretations of federal laws.”[3] The ruling was limited to ambiguous acts of Congress, not every grant to an agency.[4] In plain English, Chevron is a court created rule that provides wide latitude for executive agencies, such as the department of labor, the securities exchange commission, and others in the decisions those agencies make. It acts as a sort of preferential treatment for those agencies, so long as they follow appropriate procedures for making those rules.[5] To say it is influential in how federal agencies operate would be an understatement: it has been cited in literally tens of thousands of cases. “Agencies therefore go into court with a leg up. And some scholars think that this advantage has made them more adventurous…. Overruling Chevron may cause agencies to issue fewer new regulations, take more modest positions in the regulations they do issue, or both”[6]
Undoing Chevron could immediately impact financial advisors in several ways. It could stop the increased scrutiny concerning independent contractor status, something we are also discussing this month. It could similarly
Critics of the possibility of overturning Chevron argue it will be tantamount to deregulation of almost every industry, including financial and securities. They argue that this deregulation could create confusion over when and how much agencies such as the SEC and DOL can regulate financial advisors.[7]
Many legal experts predict that the Court will require some modification of Chevron. “The court’s conservative majority appears poised to overturn or narrow Chevron, a move that would weaken the Biden administration’s ability to defend its regulatory agenda….”[8] Many analysts predict that the first to go at the SEC may be the ESG disclosure rule that is the source of contention. “Securities and Exchange Commission’s continuing work on regulation that would require public companies to disclose information to investors about their carbon emissions and the impact of global warming on their business.”[9] In fact, some analysts think that the financial services industry may be the most impacted by a change to Chevron. “This outcome will be particularly depowering for major financial regulators like the Securities and Exchange Commission (SEC), the Consumer Financial Protection Bureau (CFPB), and the Federal Deposit Insurance Corporation (FDIC) that consistently engage in formal and informal rulemaking in absence of clear congressional intent.”[10]
Advisors may want to contact their regulatory and legal counsel after the Court’s arguments to determine how their opinion may impact the scope of regulation over financial advisors.
[1] https://www.bcgbenefits.com/blog/court-cases-retirement-planning also see https://www.bcgbenefits.com/blog/supreme-court-cases-for-sponsors
[2] https://www.supremecourt.gov/docket/docketfiles/html/public/22-451.html
[3] https://www.edf.org/media/supreme-court-will-hear-second-case-challenging-chevron-doctrine
[5] For a discussion on rulemaking procedures, see our discussion here: https://www.bcgbenefits.com/blog/are-we-there-yet
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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