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Fiduciary Rule Survives Another Court Ruling

A federal judge in Texas upheld the Department of Labor’s fiduciary rule on Wednesday in the case brought by U.S. Chamber of Commerce, Financial Services Institute, the Securities Industry and Financial Markets Association, and other trade groups.

Judge Barbara M.G. Lynn of the Northern District of Texas issued an 81-page ruling granting summary judgement to the Department of Labor.

The plaintiffs are outspoken opponents to the rule that redefines who is considered an investment advice fiduciary under Employee Retirement Income Security Act of 1974. According to the DOL, all who provide retirement investment advice to plans, plan fiduciaries and IRAs are required to abide by a “fiduciary” standard.

The judge also denied a request the same day from the Justice Department to postpone the ruling in light of President Trump’s February 3rd memo instructing the DOL to review and possibly delay the regulation that is scheduled to begin implementation on April 10th.

In the ruling, Judge Lynn argued that the fiduciary rule does not exceed the DOL’s authority, stating that “Congress gave the DOL broad discretion to use its expertise and to weigh policy concerns when deciding how best to protect retirement investors from conflicted transactions.”

With respect to ERISA, Judge Lynn noted that “Congress did speak clearly, and assigned the DOL the power to regulate a significant portion of the American economy, which the DOL has done since the statute was enacted.”

She also ruled that the best interest contract exemption is not unduly burdensome or unworkable.

The plaintiffs argued the rules violate the First Amendment by directly regulating the speech of insurance agents, broker-dealers, and others, and prohibit recommendations unless BICE is satisfied.

“At worst, the only speech the rules even arguably regulate is misleading advice,” Judge Lynn said. “Plaintiffs and their members may speak freely, so long as they recommend products that are in a consumer’s best interest.”

Despite the ruling, the nine plaintiffs said they will continue to fight the fiduciary rule.

“We continue to believe that the Department of Labor exceeded its authority, and we will pursue all of our available options to see that this rule is rescinded,” the plaintiffs said in a group statement. “While we have long supported a best interest standard, this is a misguided rule that will harm retirement savers and financial services firms that provide needed assistance and options to their clients, including modest savers and small business employees.”

The fiduciary rule has survived multiple federal lawsuits in recent months, with several challenges still pending.

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