Dallas judge upholds DOL fiduciary rule

In an 81-page ruling, Chief Judge Barbara M.G. Lynn of the Northern District of Texas, shot down each of the major arguments submitted by industry trade groups

Feb 8, 2017 @ 5:11 pm

By Mark Schoeff Jr.

+ Zoom

A Dallas federal judge upheld the Labor Department's fiduciary rule on Wednesday, dealing a crushing setback to financial industry attempts to kill the measure.

In an 81-page ruling, Chief Judge Barbara M.G. Lynn of the Northern District of Texas, granted summary judgment to the DOL. She shot down each of the major arguments submitted by the plaintiffs, a group of nine financial industry trade groups including the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association, the Financial Services Institute, the Financial Services Roundtable and the Insured Retirement Institute.

The ruling comes on the same day that the Department of Justice asked for a stay in the Dallas court proceedings. Ms. Lynn denied the motion a few hours after it was filed.

She handed down her decision a few days after President Trump ordered the DOL to review the regulation and conduct a new cost-benefit analysis. Mr. Trump's mandate could lead to the rule being modified or rescinded.

(More: The latest news and resources on the DOL fiduciary rule)

Ms. Lynn held that the DOL did not exceed its authority in promulgating the regulation, which requires financial advisers to act in the best interests of their clients in retirement accounts. She also ruled that the measure does not create a “private right of action” for clients.

She also held that the best-interest contract exemption, a legally binding contract with clients that allows advisers to charge commissions or take third-party payments, is “reasonable.” One of the subheadings of the opinion is entitled, “The BICE is not unworkable,” playing off an often-leveled industry charge that it is “unworkable.”

“[The] BICE's affect on compensation models is not arbitrary or capricious,” Ms. Lynn wrote. “To the contrary, it is reasonable for the DOL to incentivize certain compensation models over others to protect plan participants and beneficiaries.”

(More: Justice Dept. seeks stay in DOL rule lawsuit)

Ms. Lynn's decision is the third loss for industry lawsuits against the fiduciary rule.

“The DOL is batting 1,000 in the courts,” Marcia Wagner, principal at The Wagner Law Group, said.

The plaintiffs stand by the charges in their suit.

“We continue to believe that the Department of Labor exceeded its authority, and we will pursue all of our available options to see that this rule is rescinded,” the co-plaintiffs said in a statement. “While we have long supported a best interest standard, this is a misguided rule that will harm retirement savers and financial services firms that provide needed assistance and options to their clients, including modest savers and small business employees. The president's recent directive to the Department, reflecting well-founded, ongoing and significant concerns about the rule, is a welcome development.”

(More: Final Trump memo lacks explicit directive to delay DOL fiduciary rule)

— Greg Iacurci contributed to this story.

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