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Jul 06 2017

Labor Department Drops Defense of Class Action Lawsuits Stemming from Fiduciary Rule

The U.S. Justice Department, on behalf of the Department of Labor, is urging the Fifth Circuit Court of Appeals to uphold the fiduciary rule in light of the current litigation brought forth by a number of industry trade groups.

Government attorneys also disclosed that they will no longer defend a condition of the rule that allows investors to file class action lawsuits under the best interest contract exemption – a big win for fiduciary rule opponents.

“Fiduciaries are deprived of the benefits of the BIC exemption to the extent they enter into an arbitration agreement that prevents investors from participating in class-action litigation,” said the DOJ. “In light of the acting solicitor general’s recent construction of the Federal Arbitration Act in a case pending before the Supreme Court, the government is no longer defending this specific condition.”



Three industry groups, including Chamber of Commerce, American Council of Life Insurers, Indexed Annuity Leadership Council and the Financial Services Institute, challenged the fiduciary rule in the Northern District of Texas, alleging that the DOL lacked authority to revise the definition of investment advice fiduciary and that the rule violates freedom of speech.

The DOJ argued that the plaintiffs “failed to identify any reason why the fiduciary rule…should be vacated in full.”

The fiduciary rule, which currently under review as directed by President Trump, seeks to eliminate conflicts of interest in the marketplace for retirement investment advice. The controversial regulation began implementation on June 9th, while certain BIC exemption conditions are delayed until January 1, 2018.

Last week, the DOL issued a request for information seeking additional comment on whether to further extend the transitional period beyond January 1, 2018, and whether the fiduciary rule’s revised exemption structure should be modified.

The SEC also issued a request for public comment on standards of conduct for investment advisers and broker-dealers that provide investment advice to retail investors. SEC chairman Jay Clayton recently agreed to work with the DOL on the fiduciary rule issue.

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Article by: The DI Wire


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