Dallas court approval of DOL fiduciary rule bolsters supporters’ case

The loss in Texas was the third that industry plaintiffs have suffered in courts around the country and perhaps the one that stung the most. Plus: John Bogle on why demise of fiduciary rule would be 'step backward' for nation

A Dallas federal judge’s decision on Wednesday to uphold the Labor Department’s fiduciary rule buttresses supporters’ efforts to prevent the Trump administration from overturning the rule.
“The DOL would be hard pressed logically to conclude now that the rule should not be implemented,” said Charles Field, a partner at Sanford Heisler.
The outcome in the Texas court was especially noteworthy because the plaintiffs chose that venue in part because the circuit has not been sympathetic toward Obama administration regulations.
“To see that a judge in Texas upheld the rule with a strong opinion is pretty powerful support for the rule,” Mr. Field added.
In a bracing 81-page opinion, Chief Judge Barbara M.G. Lynn of the U.S. District Court for Northern Texas dismantled each of the arguments against the regulation that several industry trade associations made in their suit.
She held that the DOL did not exceed its authority, did not create a private right of action for clients and did not violate rulemaking parameters. In fact, she endorsed DOL’s analysis of how the rule would affect investors and financial firms.
“The court finds the DOL adequately weighed the monetary and non-monetary costs on the industry of complying with the rules, against the benefits to consumers,” Ms. Lynn wrote in her opinion. “In doing so, the DOL conducted a reasonable cost-benefit analysis.”

(More: DOL fiduciary rule class-actions costs could top $150M a year)

That point strikes at the heart of a Feb. 3 directive President Donald Trump sent to the DOL, telling it to review the rule to determine whether it harms investors or firms and encouraging the agency to amend or rescind the measure if it does.
In conducting another cost-benefit analysis, the DOL will have to take into account Ms. Lynn’s ruling, according to experts.
In its review of the rule, the Trump DOL will have to be rigorous in how it disagrees with the Obama administration’s analysis, according to William Nelson, public policy counsel at the Certified Financial Planner Board of Standards Inc.
“They actually have to give a rationale,” Mr. Nelson said. “A lot of the things Trump is asking them to do, the court has affirmed.”
But Edward Klees, a partner at Hirschler Fleischer, said that the Trumo DOL can assert its authority in changing or overhauling the rule just as the Obama DOL did in promulgating it.
“There’s nothing stopping the DOL from abandoning the rule full stop,” Mr. Klees said. “This case will have no impact on it.”
The loss in Dallas was the third that industry plaintiffs have suffered in courts around the country and perhaps the one that stung the most.
Ms. Lynn’s decision comes as the DOL rule, which requires financial advisers to act in the best interests of their clients in retirement accounts, nears its initial implementation date, April 10.

(More: What you need to know now about Trump’s plan to halt DOL fiduciary rule)

It was released as many financial firms are taking steps to comply with the DOL rule, a new set of circumstances the Trump administration must acknowledge, said Micah Hauptman, financial services counsel at the Consumer Federation of America.
“The new administration can’t just ignore the facts in their analysis,” Mr. Hauptman said. “If they did, they would be setting themselves up for a legal challenge.”
Officials from three of the industry groups filing the suit in Dallas – the Financial Services Institute, the Securities Industry and Financial Markets Association and the U.S. Chamber of Commerce – were not immediately available for comment.
In a joint statement after Ms. Lynn ruled, they said they were not giving up.
“We continue to believe the Department of Labor exceeded its authority and we will pursue all of our available options to see that this rule is rescinded,” the industry statement said.
That said, Mr. Trump’s directive to the DOL will not sit well with courts, according to Richard Pierce, a professor of law at George Washington University. “They are not deferential to presidents who tell an agency ‘go back and redo [a regulation]’,” Mr. Pierce said. “That’s something President Trump doesn’t understand.”
The DOL’s effort to review the fiduciary rule is further complicated by the fact that a new secretary is not yet in place. Mr. Trump’s nominee, Andrew Puzder, will have a Senate hearing on Feb. 16.