Lawsuit Challenges Labor Department’s Fiduciary Rule

dolOn June 1, 2016, industry groups led by the U.S. Chamber of Congress filed suit against the Department of Labor to challenge its new fiduciary rules issued on April 6, 2016. Chamber of Commerce of U.S. v. Perez, No. 3:16-cv-01476-G (N. D. Tex.). The fiduciary rules impose responsibilities on those rendering advice on retirement investments to act in the best interests of their clients. The plaintiffs contend that the fiduciary rule is “deliberately unworkable,” and that the Labor Department does not have “the expertise or authority to regulate financial services in a manner that properly balances the needs of retirement savers and small businesses.” In addition, the complaint alleges that the fiduciary rule violates the First Amendment by imposing onerous restrictions on communications by financial professionals, and encroaches on the authority of the Treasury Department and the SEC.

A similar lawsuit was filed in Washington a day later (Nat’l Ass’n for Fixed Annuities v. Perez, No. 1:16-cv-01035 (D.D.C.), filed June 2, 2016), which also raises claims of violations of plaintiffs’ Fifth Amendment due process rights. Additional legal challenges to the new rules are expected, according to Bloomberg BNA Securities Regulation & Law Report, 48 SRLR 1127 (June 2, 2016).

Investment professionals have long been held to fiduciary standards in advising their clients in securities matters other than retirement accounts. As the Supreme Court stated in 1963,

the Investment Advisers Act of 1940. . .reflects a congressional recognition of the delicate fiduciary nature of an investment advisory relationship, as well as a congressional intent to eliminate, or at least to expose, all conflicts of interest which might incline an investment adviser— consciously or unconsciously—to render advice which was not disinterested.

Sec. & Exch. Comm’n v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 191-92 (1963).


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