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.
