Trial Lawyers Want to Defend Fiduciary Rule in Court

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By Jacklyn Wille

Industry groups that support the Labor Department’s fiduciary rule came out swinging in new legal briefs, one of which offers to defend in court a key provision of the rule that the DOL is no longer defending ( Chamber of Commerce v. U.S. Dep’t of Labor, 5th Cir., No. 17-10238, amicus briefs filed 7/6/17 ).

The American Association of Justice, a nonprofit group representing plaintiffs’ lawyers, fired back at the department’s July 3 decision to drop its defense of the fiduciary rule’s anti-arbitration condition, a condition aimed at preventing financial advisers from insulating themselves from class litigation. In its brief, the AAJ painted the anti-arbitration condition as a valid exercise of DOL authority that’s in line with the Federal Arbitration Act. In addition, the group requested time during oral arguments to defend the condition before the U.S. Court of Appeals for the Fifth Circuit.

The AAJ chastised the Labor Department for taking the “extraordinary step” of asking the court to “ vacate the government’s own rule.” According to the AAJ, “the government’s lawyers at the Department of Justice are asking this Court to vacate a rule that the Department of Labor (a) promulgated after thorough notice-and-comment rulemaking, (b) successfully defended in court, and (c) is currently required to implement.”

Other groups filed briefs defending the Obama-era regulation on its merits and contesting the idea that the rule—which is aimed at reducing conflicted investment advice given to retirement savers—will wreak havoc on the financial industry.

The Financial Planning Coalition called the fiduciary rule a “win-win” for both “professionals and the public.” The coalition said the Certified Financial Planner Board of Standards adopted a fiduciary standard in 2008 and that since that time, the number of CFP professionals has grown by 30 percent to nearly 80,000. Moreover, given the $15 trillion that Americans hold in 401(k) plans and individual retirement accounts, it “defies credibility” to think that a regulatory change like the fiduciary rule will drive financial advisers away from this business opportunity, the coalition argued.

AARP offered a full-throated defense of the rule, both on the merits and with respect to the regulatory process that led to its adoption. AARP particularly objected to the idea that the fiduciary rule would make it significantly harder for financial advisers to continue operating. Rather than driving investment advisers out of business or making it harder for middle-income investors to get professional advice, the rule has spurred innovation in the industry and allowed firms to choose business models that best fit their preferences, AARP argued.

Nonprofit law firm Public Citizen Inc. challenged the idea that the fiduciary rule infringes on speech in violation of the First Amendment. Some fiduciary rule critics, including the American Council of Life Insurers, have argued that the rule impermissibly restricts the speech of investment advisers by placing limits on the type of advice they can offer.

Not so, Public Citizen said. The rule regulates professional conduct, not speech, and is akin to the regulation on medical advice given by veterinarians upheld by the Fifth Circuit in 2015.

Multiple industry groups and companies have filed lawsuits challenging the fiduciary rule from various angles. Every federal judge who has ruled on these cases upheld the rule in its entirety, handing losses to the U.S. Chamber of Commerce and the American Council of Life Insurers, Market Synergy Group, and the National Association for Fixed Annuities.

The remaining district court challenge specifically attacks the rule’s anti-arbitration condition aimed at curbing class litigation against financial advisers—the very provision the DOL is no longer defending. The group involved in that case, Thrivent Financial for Lutherans, asked a federal judge July 5 to rule in its favor based on the DOL’s new position.

The briefs of AAJ, the Financial Planning Coalition, AARP, and Public Citizen were filed July 6.

Gupta Wessler PLLC represents AAJ. Stris & Maher LLP represents the Financial Planning Coalition. AARP Foundation Litigation represents AARP. Public Citizen Litigation Group represents Public Citizen.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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