Critics of the Labor Department’s latest fiduciary rule filed a lawsuit challenging its legality in the Fifth Circuit Court of Appeals last week, hoping the court would vacate the rule as it did with the previous rule enforced by the Obama administration. .
The Federation of Americans for Consumer Choice (FACC), a Texas-based trade organization for insurance agents and agencies, filed suit in appeals court along with several advisors and firms, including those in Texas, Mississippi and Louisiana. The lawsuit deduces that the new interpretation of the rule still expands the definition of a fiduciary, reiterating the same problems that the Fifth Circuit Court had with the Obama-era ruling. The FACC also argues that the rule could adversely affect consumers who may benefit from certain insurance products.
“This new interpretation takes forward the main problem of the Fifth Circuit first identified in vacating the fiduciary rule: DOL’s imprecise attempt to rewrite and expand the definition of a fiduciary under ERISA and the Code,” the suit reads. Is. “Putting the same old wine in a new bottle doesn’t change the outcome.”
In 2018, Fifth Circuit vacated the original rule During the Obama Administration, passed along to the Trump Administration finally issue your follow up proposal in the summer of 2020. The Trump-era rule detailed how certain recommendations were allowed to be made, provided they followed certain “fair conduct standards,” which were intended to align with the Securities and Exchange Commission’s regulation best interest.
rule gone Effective in February of last yearAlthough the DOL later announced that it would Delay in implementing the rule earlier this year And will not enforce the rollover requirements until the end of June.
Although some consumer advocates criticized the Trump-era rule for undermining investor protections, some supported the rule, with former Consumer Federation of America investor protection director Barbara Roper saying it would be “from nothing to nothing” in the short term. better”.
Specifically, the rule insisted that the 1975 “five-part trial” was automatically reinstated after the 2018 rule vacated the Obama-era regime, but in the new suit, the FACC argued Given that the purpose of the New Testament is still to make drastic changes that will fall. Under ERISA fiduciary regulatory requirements.
Part of the five-part test includes advice on determining whether fiduciary status should apply is part of an “ongoing” relationship, but the new rule’s guidance clarified that a first-time recommendation may be eligible provided that client and advisor intend to meet again. The plaintiffs argued that the new guidance meant that advice given by someone who had not done so before, but may in the future fall under fiduciary status.
“This semantic distinction is meaningless from a practical standpoint, as all investment professionals seek to establish and maintain relationships with clients and potential clients, not avoid them,” the suit read.
in November Panel Sponsored by Fourside Consulting Group, Managing Director Jacqueline Hummel said the rule changes in the rollover recommendations were notable, as earlier advisors offered a “free bite on the apple” in advising, provided it was not offered in the middle of an ongoing relationship. . Stephen Wilkes, a partner at Wagner Law Group, said the DOL had fought a “tooth and nail” battle for years to expand ERISA’s fiduciary status to include those who did not specifically follow the five-part had structured its activities to avoid testing. For Wilkes, the new testament reinterprets the same law with the same regulation.
“There is no change in wording. Their explanatory stance is more expansive than ever, and they are really tough on it,” he said. “For those who wish to engage in business in a non-credible capacity, I think it’s more difficult and challenging than ever.”
Phyllis Borzi, the former DOL assistant secretary for employee benefits protection, said she was not surprised to see the lawsuit filed in the Fifth Circuit in the Northern District of Texas consider it a “go-to place” for parties challenging the DOL. . Rule. Borzzi, who served in the Obama administration during the formation of the previous rule, said the suit raised several questions; He wondered what the damage could be for the plaintiff, as the goodwill delay on enforcement had recently ended.
Borzzi also questioned why the FACC had filed a lawsuit against the Obama-era regime in the absence of several players in previous suits; In that instance, plaintiffs included the U.S. Chamber of Commerce, the Securities Industry and Markets Financial Association, and the American Council of Life Insurers. Borzzi also argued what was wrong with the Trump-era fiduciary exemption. While the Trump administration did not appeal the decision to vacate the Obama-era regime, they expected a strong response from the Biden administration to the suit.
“I don’t think it’s a particularly strong legal brief, but who knows what the Fifth Circuit will do,” she said.