DOL’s Fiduciary Ruling Faces Legal Challenge

The lawsuit everyone has been waiting finally arrived last week, perhaps opening the litigation flood gates. As John Manganaro writes in “Anticipated Lawsuit against DOL Fiduciary Rule Has Arrived,” a coalition of national financial and business trade groups has filed a lawsuit to strike down the Department of Labor’s (DOL) new regulations that will require most brokers and investment consultants to act as fiduciaries. Quoting from the complaint, that plaintiffs hope to squelch “over-reaching federal regulations that will restrict hardworking Americans’ access to retirement advice and planning services.”

As Manganaro reports, organizations filing the suit this week in the U.S. District Court for the Northern District of Texas include the U.S. Chamber of Commerce, Financial Services Institute, Financial Services Roundtable, Greater Irving-Las Colinas’ Chamber of Commerce, Insured Retirement Institute, Lake Houston Area Chamber of Commerce, Lubbock Chamber of Commerce, Securities Industry and DOL_Sign and RulesFinancial Markets Association, and the Texas Association of Business.

In a joint statement, the CEOs of the co-plaintiffs explained their objections to the DOL regulation: “Our organizations have a long, well-documented record of support for the creation of a uniform best interest, or fiduciary, standard of customer care for financial professionals providing personalized investment advice to retail investors. The Department of Labor’s new, 1,023-page rule, however, creates sweeping changes to existing regulations that will make saving for retirement more difficult for the very same hardworking American families and individuals it claims to protect.”

Their complaint itself trots out the familiar laundry list of the “potential unintended consequences of the ambitious rulemaking.” The plaintiffs charge that advisors servicing small business plans “will be left with no choice but to limit or stop servicing the retirement plans . . . significantly reducing the retirement savings options available to their millions of employees.”

My take on that is: Yes, advisors who are unwilling to put their clients’ needs first will have to stop servicing retirement plans. And that’s certainly a positive.

Basically, this complaint charges that the DOL overstepped its authority and that regulation should be the sole responsibility of the Securities and Exchange Commission (SEC). You can read the full complaint here.

A day after this complaint was filed, the National Association of Fixed Annuities (NAFA), a trade association representing insurance companies, independent marketing organizations and individual insurance agents, filed its lawsuit in the U.S. District Court for the District of Columbia. In addition to asking the court to vacate and set aside the fiduciary rule and its associated exemptions, NAFA wants a preliminary injunction, or a temporary halt that could delay the implementation date it describes as “almost an impossibility for the industry.”

Of course, my view is that it is impossible to do business any other way than as a fiduciary who always and willingly puts clients’ needs and interests first. Sadly, as Secretary of Labor Thomas Perez said in response to these lawsuits, “Industry groups and lobbyists are suing for the right to put their own financial self-interests ahead of the best interests of their customers,”

I don’t expect these lawsuits to derail the new fiduciary rule that is scheduled to take effect next year. But they could be the harbinger of more legal challenges to come. Stay tuned.

Leave a Reply

Your email address will not be published. Required fields are marked *