Despite successful legal challenges and a thunder-stealing rules package proposed by the Securities and Exchange Commission, the Department of Labor’s fiduciary rule isn’t dead quite yet.
In the regulatory equivalent of a Hail Mary pass, senior advocacy group AARP and three states are trying to spare the rule from being tossed aside.
Anticipating that the U.S. Department of Labor (DOL) itself might not request a rehearing, AARP has filed a motion asking the full Fifth Circuit for permission to intervene in the case and, in addition, to reconsider the adverse decision made by the smaller three-judge panel.
“Many financial advisors already give advice with the public’s best interests in mind. But the recent court decision allows some financial advisors to provide guidance based on what’s best for their pocketbooks, not the consumers,” said Nancy LeaMond, AARP’s Chief Advocacy and Engagement Officer.
In March, the U.S. Court of Appeals for the Fifth Circuit vacated the DOL fiduciary rule that would help ensure that advisors give retirement investment advice that is in the best interest of investors. The Fifth Circuit’s three-judge panel’s split 2-1 ruling ran counter to several previous federal court decisions favoring retirement savings protections, including a decision by the U.S. District Court for the Northern District of Texas and a decision by the Tenth Circuit Court of Appeals.
In April 2016, the Department of Labor finalized a new rule that creates a fiduciary duty for brokers and registered investment advisers who offer retirement advice. The rule—originally scheduled to be phased in between April 10, 2017, and Jan. 1, 2018—expanded the “investment advice fiduciary” definition under the Employee Retirement Income Security Act. Plaintiffs—including The U.S. Chamber of Commerce, Financial Services Institute, Financial Services Roundtable, Insured Retirement Institute, and Securities Industry and Financial Markets Association—tried to kill the rule by combining their forces for a lawsuit, Chamber of Commerce of the USA, et al. v. U.S. Department of Labor, et al. Co-plaintiffs, to bolster a desire for jurisdiction shopping, included the Greater Irving-Las Colinas Chamber of Commerce, Lake Houston Area Chamber of Commerce, Lubbock Chamber of Commerce, and the Texas Association of Business.
In its 16-page filing on April 26, AARP wrote that “the (Fifth Circuit) decision creates an irreconcilable intra-circuit split (within the Circuit itself) and conflicts with Supreme Court precedent.”
“The panel’s decision also presents an exceptionally important issue because it robs workers, retirees, and their families of crucial protections for their retirement investments,” it adds.
AARP has strongly supported a fiduciary standard that calls for retirement-fund financial advice that is in the customer’s best interest and not subject to conflicts. This contrasts with a lax “suitability” standard that has enabled some advisors to make recommendations that are in their financial interests, rather than those of their clients.
Meanwhile, the Attorneys General of New York, Oregon, and California on Thursday filed a motion to intervene in Chamber of Commerce of the USA, et al. v. U.S. Department of Labor, et al in an effort to ensure that the Rule is once again implemented.
In the motion, the Attorneys General assert that the decision from the Fifth Circuit Court of Appeals:
Will deprive millions of Americans of basic safeguards as they seek financial advice about their retirement investments;
will cost California at least $38 million in lost taxes over the next 10 years and will cost Americans who are saving for retirement tens of billions of dollars;
wrongly held that the Department of Labor lacked authority to require financial advisors to holders of Individual Retirement Accounts (IRA) to act in their clients’ best interests; and
conflicts with the decisions of three other courts, including the Tenth Circuit Court of Appeals, that have upheld the Fiduciary Rule.
In addition to filing the motion to intervene, the Attorneys General have concurrently filed a petition for rehearing en banc with the Fifth Circuit Court of Appeals. The petition, if granted, will allow them to ask the full 17-judge court to rehear the matter and overturn the decision made by the three-judge panel.