DOL defends fiduciary rule in brief to appeals court in industry lawsuit

But the agency does not protect a provision of the regulation that allows class-action lawsuits

Jul 5, 2017 @ 2:29 pm

By Mark Schoeff Jr.

The Department of Labor defended its fiduciary rule in a brief submitted to an appeals court earlier this week, giving supporters of the rule hope that most of it can survive a review the agency is conducting.

In a brief filed on July 3 in the 5th Circuit Court of Appeals, the Department of Justice, representing the DOL, argued that the appellate justices should affirm a Dallas district court's decision to uphold the rule. The 135-page brief asserted that the plaintiffs, who are several financial industry trade associations opposing the regulation, failed to make their case that the DOL did not have the authority to promulgate the regulation, which requires financial advisers to act in the best interests of their clients in retirement accounts.

The DOJ did give one nod to rule critics, saying that it would not defend a provision of the rule that would allow investors to file class-action suits against financial advisers who violate the best-interests standard.

That was the only piece of good news for the industry plaintiffs, including the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association, the Financial Services Institute and the Financial Services Roundtable. Otherwise, the brief endorsed the Dallas court's evisceration of the industry's arguments.

"We look forward to the opportunity to argue our case before the 5th Circuit Court of Appeals," David Bellaire, FSI executive vice president and general counsel, said in a statement.

Representatives for the other industry groups were not immediately available for comment.

The lawsuit was filed during the Obama administration, which finalized the rule in April 2016. But now the Trump administration DOL also is defending it in court.

Advocates of the rule interpreted the brief as giving some protection to the rule as the DOL conducts a reassessment of the measure ordered by President Donald J. Trump that could lead to revisions. The DOL last week released a request for comment to guide its reconsideration.

"This is a very positive development taken as a whole," said Steve Hall, legal director and securities specialist at Better Markets. "The DOJ deserves credit for standing up for 90% of the rule. This strong brief will make it more difficult for the agency to try to unwind or weaken the rule significantly."

Barbara Roper, director of investor protection at the Consumer Federation of America, also is more optimistic.

"It's encouraging that the signs suggest, for now, that some version of the fiduciary rule is likely to survive," Ms. Roper said.

But George Michael Gerstein, counsel at Stradley Ronon Stevens & Young, said that the brief submitted to the appeals court does not necessarily mean that the DOL is going to go easy on the regulation. The agency was simply protecting its turf.

"The DOL is always going to want the right to promulgate an investment-advice rule," Mr. Gerstein said. "It's a jurisdictional defense."

The fact that the DOL carved out the class-action provision, which it said it could not defend because of the Trump administration's position on such suits in a case before the Supreme Court, means it could be on the cutting board, Mr. Gerstein said.

That has supporters concerned.

"We're disappointed one of the important remedies available to retirement savers under the rule may be less likely to survive," Mr. Hall said.


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