DOL fiduciary rule: Trump administration signals intent to kill class-action provision in BICE

The Trump administration has delivered what seems to be its clearest signal yet that it is seeking to remove the class-action-litigation provision from the Department of Labor’s fiduciary rule.

In an Aug. 23 letter to Minnesota district court judge Susan Nelson, who is presiding over one of the ongoing lawsuits against the fiduciary rule, the Department of Justice wrote that the class-action provision “will likely be mooted in the near future.”

The provision is one of the most reviled portions of the rule among opponents of the regulation, which raises investment advice standards in retirement accounts.

It is part of the rule’s main enforcement mechanism, known as the best-interest contract exemption. BICE makes broker-dealers enter into a contract with investors when their brokers receive variable compensation, such as commissions, for investment products sold in IRAs.

The contracts cannot waive investors’ right to bring class-action litigation against financial institutions, a prospect that has unnerved the financial-advice and broader financial-services industry. Rule proponents say the provision is necessary to hold firms accountable.

“The DOJ’s recent letter in connection with the ongoing Thrivent litigation has provided the clearest picture to date of the DOL’s intentions regarding the future of a key component of the fiduciary rule,” Joshua Lichtenstein, attorney in the tax and benefits department of law firm Ropes & Gray, said via e-mail.

President Donald J. Trump in February asked the DOL to review the Obama-era rule and, among other things, determine whether the rule would cause an increase in litigation.

The Justice Department filed its recent letter in a case brought last year by Thrivent Financial for Lutherans against the regulation.

The DOJ had previously indicated in the Thrivent lawsuit, and in a separate lawsuit currently in the Fifth Circuit Court of Appeals in New Orleans, that it would no longer defend the class-action provision.

“I think reading between the lines before, it was clear” what the DOL’s intent is regarding the class-action provision, said Micah Hauptman, financial services counsel at the Consumer Federation of America. “But I think this makes it more explicit.”

The Labor Department submitted a proposal to the Office of Management and Budget earlier this month requesting an 18-month delay in the rule’s second phase of implementation, set to begin Jan. 1.