The Financial Services Institute’s battle to roll back the Department of Labor’s latest fiduciary rule is likely headed to court, executives of the trade group said at their annual conference in Orlando, Fla., this week.
“Our efforts to influence the final rule as best as I can tell fell on deaf ears,” President Dale Brown told reporters at a press conference Tuesday.
The proposed rule would expand fiduciary duty to anyone who charges a fee or commission for advising retirement plan participants and IRA owners, while narrowing the transaction waivers registered reps and insurance agents have used for decades to exclude themselves from fiduciary duties.
If the FSI proceeds with a lawsuit, it will be the second time the trade group representing independent broker-dealers and registered reps has sued to overturn a DOL fiduciary rule.
FSI successfully sought to vacate the 2016 Obama-era fiduciary rule in 2018 after a legal appeal with co-plaintiffs such as the U.S. Chamber of Commerce and Securities Industry and Financial Markets Association. The groups won their case in the U.S. Court of Appeals for the Fifth Circuit, which oversees Texas, Louisiana and Mississippi.
Brown said FSI has stayed in close touch with a “coalition” of interested trade groups and companies for the very purpose of coordinating efforts against the latest proposed rule, although he declined to name members of the group, saying he didn’t want to speak for them.
“Since 2010 we have engaged with DOL directly … all during that time seeking to help the DOL accomplish what it said it wanted to accomplish. Our final option was to participate in litigation in 2016, and the Fifth Circuit agreed with our argument that it was too costly and complex and they vacated the rule nationwide. Here we are today. They proposed a new version that largely will have the same overreaching, unworkable, negative outcomes for small investors that need retirement advice. We’re focused on making sure that there is a best interest standard in place across the profession that works and I’m not going to apologize for the view,” Brown added.
A new report sponsored by FSI said the proposed rule would cost independent reps and broker-dealers $2.7 billion in the first year—11 times more than the Department of Labor has estimated. The costs and compliance and disclosure requirements, when coupled with Regulation Best Interest and state requirements, would make it much more difficult for reps to continue to work with middle-income investors, FSI General Counsel David Bellaire said at the presser.
Charles Schwab General Counsel Peter Morgan has also asked the DOL to withdraw the proposed fiduciary rule, calling the project an “ill-fated sequel … destined to meet the same fate as its 2016 predecessor.”
Like a number of securities attorneys and former DOL regulators, Morgan said the rule exceeds the DOL’s regulatory authority and is fatally flawed. The term fiduciary “is not ambiguous, and may not be construed to capture broker-dealers and other financial professionals giving onetime advice,” he said in a January 2 comment letter.
FSI is also currently suing DOL to overturn its new independent contractor regulation, which the advocacy group said will hamper independent reps who run their own businesses.