Justice Department continues to defend DOL fiduciary rule in court

Some experts anticipate the Trump administration will abandon the legal fight, but that hasn't happened yet

Feb 1, 2017 @ 1:19 pm

By Mark Schoeff Jr.

+ Zoom

The Department of Justice continues to defend a Labor Department investment-advice rule in a lawsuit in a Texas federal court almost two weeks after President Donald Trump was sworn into office.

In a Jan. 25 brief, financial industry plaintiffs asserted that a recent DOL proposal to ease compliance for some fixed-indexed annuities providers demonstrated that the advice rule would “upend” the distribution system and proved it was an example of “regulatory overreach.”

The industry also claimed that recent DOL guidance on the rule — which requires financial advisers to act in the best interests of their clients in retirement accounts — “transforms virtually all sales activity into fiduciary advice.”

In a Jan. 30 reply, DOJ lawyers shot back.

“Plaintiffs' response … mischaracterizes the Department of Labor's rulemaking and guidance,” the brief states.

The lawsuit in the Texas court has been filed by several financial-industry trade associations, who claim that the rule is too complex and burdensome and will significantly increase the costs of giving and receiving advice.

The DOJ has been defending the DOL rule, which the Obama administration asserted is crucial for protecting workers and retirees from conflicted advice that leads to inappropriate high-fee investment products that erode savings.

Some experts anticipate the Trump administration will abandon the rule in court. But that hasn't happened yet.

“It's pretty rare for even a new administration to do a 180 [degree turn] with respect to its litigation posture,” said Micah Hauptman, financial services counsel at the Consumer Federation of America. “I understand that courts have not looked kindly on legal about-faces.”

One insurance industry association isn't surprised that the government is still backing the DOL rule.

"We would expect the Department of Labor, through the Justice Department, to continue to defend the rule unless or until instructed otherwise by the new administration," Gary Hughes, executive vice president and general counsel at the American Council of Life Insurers, said in a statement.

The judge presiding over the case in the Dallas federal court, Chief Judge Barbara M.G. Lynn, could issue a ruling at any time.

“Victory in that lawsuit would prove the most efficient way to end the rule,” David Bellaire, executive vice president and general counsel at the Financial Services Institute, told reporters on Jan. 24 at the organization's annual meeting in San Francisco.

Industry opponents of the rule also are urging the Trump administration to delay and then repeal it.

For now, they're still fighting it out court.

In its Jan. 30 response, the DOJ said that the DOL guidance did not make the definition of fiduciary advice as expansive as the industry claimed.

“Even if the context makes a statement at [an investor] seminar a 'recommendation,' fiduciary obligations attach only if the other conditions are also met,” the DOJ response states.

It was signed by Galen N. Thorp, one of the DOJ attorneys, who, along with Emily Newton, has been defending industry lawsuits against the DOL rule since last summer.

The defendant in the Texas lawsuit has now been changed from former DOL Secretary Thomas Perez to the current acting secretary, Edward C. Hugler.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

Carson Group's Schaben: Making sense of millennials

Lazy, entitled, the trophy generation: These are stereotypes most often associated with millennials. But why are these myths and not realities. Carson Group's Aaron Schaben explains.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

10 signs your client is cheating on you

Sure signs that clients may be on the way out the door.

How adviser salaries stack up to other jobs

Median compensation hovers just under $100,000 on the low end and reaches nearly $300,000 for bosses.

How to save retirement planning from tax reform

Losing big deductions, even in lieu of a larger standard deduction, may cause taxes to rise in retirement.

Advice firms in a tricky financial position

As revenue growth dips and salaries rise, nearly 90% of firms are at or near capacity.

In a turnaround, Wells Fargo Advisors sees slight bump in headcount

Racked by a scandal in its retail banking unit, Wells still managed to add 37 new advisers in the third quarter, a small number but an improvement nonetheless.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print