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President Obama Vetoes Anti-Fiduciary Rule Resolution

President Obama vetoed H.J. Res. 88, a joint resolution introduced by Rep. Phil Roe (R-TN) that was seeking to block the Department of Labor’s fiduciary rule. Republicans have been leading the fight against the controversial rule that redefines what is considered a “fiduciary” as it pertains to giving investment advice.

The resolution passed the House in April in a 234-183 vote along party lines, and a month later passed the Senate in a 56-41 vote mostly along party lines with Democrats Joe Donnelly (D-IN), Heidi Heitkamp (D-ND), and Jon Tester (D-MT) approving the measure. However, neither chamber reached the two-thirds majority needed to override a veto by the President.

“The outdated regulations in place before this rulemaking did not ensure that financial advisers act in their clients’ best interests when giving retirement investment advice. Instead, some firms have incentivized advisers to steer clients into products that have higher fees and lower returns—costing America’s families an estimated $17 billion a year,” said President Obama in a veto message released on Wednesday. “The Department of Labor’s final rule will ensure that American workers and retirees receive retirement advice that is in their best interest, better enabling them to protect and grow their savings.”

He added, “The final rule reflects extensive feedback from industry, advocates, and members of Congress, and has been streamlined to reduce the compliance burden and ensure continued access to advice, while maintaining an enforceable best interest standard that protects consumers.”

Last week, a number of industry trade groups filed a lawsuit challenging the DOL rule, which is scheduled to become operational in April 2017. Included in the suit are the U.S. Chamber of Commerce, Financial Services Institute, Financial Services Roundtable, Greater Irving-Las Colinas’ Chamber of Commerce, Insured Retirement Institute, Lake Houston Area Chamber of Commerce, Lubbock Chamber of Commerce, Securities Industry and Financial Markets Association, and Texas Association of Business.

In a joint statement, the chief executive officers of the five national association co-plaintiffs, said “Our organizations are now asking a court to review whether the Department of Labor overstepped its boundaries, creating a rule that will leave Americans with fewer retirement choices, higher costs and reduced access to professional financial advice. Further the ‘private right of action’ mechanism creates significant new legal risk for financial advisors, who will face the threat of class action lawyers challenging their every move.”

The National Association of Fixed Annuities also filed a lawsuit seeking to block the rule from taking effect by requesting a preliminary injunction.

According to NAFA, the lawsuit alleges that the rule is invalid on grounds that the DOL exceeded its authority to regulate IRAs and that it improperly categorizes insurance agents as fiduciaries. The lawsuit further alleges that the rule creates a private right of action, which only Congress can do.

“Our organization strongly supports consumer protection but this rule exceeds DOL’s rulemaking authority and will result in lost jobs in our industry, less choice for consumers and more lawsuits to line the pockets of class action lawyers, said Chip Anderson, executive director of NAFA. “We will do whatever we can to help policymakers create real solutions, but this rule will do more harm than good, and we will challenge it in the courts.”

Earlier this week, the U.S. District Court for the District of Columbia set an August 25th hearing date for the case.

Stay tuned for more on the upcoming lawsuit and other fiduciary rule news.

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