Investor plaintiffs’ lawyers say the Department of Labor’s fiduciary rule will give them some extra leverage in winning damages from arbitration panels—but they don’t expect a huge windfall.
The DOL rule gives investors the right to file arbitrations or class-action claims for violations of the rule, giving rise to industry concerns about increased liability.
Sure enough, plaintiffs’ lawyers think the rule will help win damages.
“If you have a lawyer on [an arbitration panel], the rule will make a difference,” said Scot Bernstein, a plaintiffs’ lawyer in Folsom, Calif. “They understand how big a step up in obligation [fiduciary duty] is. … That’s something that gets hammered home at law schools.”
“Even jaded Finra arbitrators, if they see a broker is under a fiduciary duty, that has an impact,” agreed Andrew Stoltmann, a Chicago-based investor lawyer.
What’s more, a fiduciary standard imposes an ongoing duty to monitor an investment, something brokerage firms claim they don’t have to do, said Seth Lipner, a plaintiffs’ attorney in Garden City, N.Y.
“That’s a big change in the legal playing field,” Lipner said.
The rule could also help plaintiffs in claiming damages, Lipner added, by allowing a “well-managed” account benchmark instead of an out-of-pocket loss claim, as is often done now.
Still, the DOL’s higher standard of care for IRA owners is not a “game changer” for the industry, countered Ryan Bakhtiari, a Beverly Hills, Calif., plaintiffs’ lawyer.
“There are plenty of states, California among them, that have always had strong fiduciary duties. [So] if it were a game changer, we would have seen Merrill Lynch and all the big firms pull up roots in California and go home,” Bakhtiari said.