FSI, SIFMA join federal lawsuit to overturn DOL fiduciary rule

By Doug Bailey

The Financial Services Institute (FSI) and the Securities Industry and Financial Markets Association (SIFMA) have joined a federal lawsuit that seeks to overturn a recently finalized Department of Labor rule that broadens the definition of a "fiduciary" and, according to the plaintiffs, endangers investors' access to essential advice and education.

The legal complaint asserts that the new rule mirrors a 2016 DOL regulation that was invalidated by the Fifth Circuit Court of Appeals in 2018. "Like the 2016 Rule, the 2024 Rule is inconsistent with the common law, contravenes the statutory text, and impermissibly attempts to regulate the provision of services to accounts over which the Labor Department has no regulatory authority. Indeed, the illegality of the 2024 Rule is even clearer today," the complaint states.

In 2019, the Securities and Exchange Commission (SEC), introduced Regulation Best Interest (Reg BI). This regulation effectively established the standards for broker-dealers that the DOL's 2016 Rule had sought to impose, a fact the DOL itself has acknowledged.

FSI and SIFMA argue that the introduction of Reg BI eliminated the need for the DOL to impose its own regulations on broker-dealers. Furthermore, the SEC, in implementing Reg BI, explicitly rejected the notion of a uniform standard of conduct for all financial professionals, a standard the DOL now claims to have imposed with its 2024 Rule.

Fiduciary rule lawsuit claims DOL oversteps

"The Department of Labor is an employment regulator, not a broker-dealer regulator," the complaint emphasizes. The plaintiffs contend that the DOL's rule not only oversteps its statutory authority but also violates the Administrative Procedure Act. They argue that the rule lacks rational justification and has not undergone a thorough cost-benefit analysis.

The original fiduciary rule lawsuit, filed in May by the Federation of Americans for Consumer Choice, challenged the legality of the DOL rule. A separate case is being heard by the Northern District of Texas challenging the same rule.

Meanwhile, the group that certifies financial professionals argues that the new rule will cover important regulatory gaps and not hinder investment advice for retirement savers. The CFP Board submitted an amicus brief last week to the Texas District Court in defense of the DOL’s Retirement Security Rule.

Leo Rydzewski, general counsel of the CFP Board, said the board overwhelmingly supports the approach taken by DOL, because it will mitigate enormous gaps in regulation that currently exist.

These legal challenges to the rule come at a critical time for the financial services industry, as firms and advisors grapple with evolving regulatory requirements. The outcome of this case could have far-reaching implications for the regulatory landscape and the provision of financial advice to retail investors.

'Access' to advice is the goal

FSI and SIFMA's decision to pursue legal action underscores the high stakes involved.
"Our goal is to ensure that investors continue to have access to the advice and education they need to make informed financial decisions," said Dale Brown, President and CEO of FSI. "The DOL's overreach threatens that access and imposes unnecessary burdens on financial professionals."

Similarly, Kenneth E. Bentsen, Jr., president and CEO of SIFMA, highlighted the importance of maintaining a clear regulatory framework.

"The SEC is the expert agency created by Congress to regulate our industry," he said. "The DOL's attempt to impose its own rule in this space creates confusion and uncertainty."
The case is expected to be closely watched by industry stakeholders, policymakers, and investors alike, as its resolution will likely shape the future of fiduciary standards and investor protections in the financial services sector.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].