The legal fight to stop the Department of Labor fiduciary rule returns to the spotlight Monday in the Fifth Circuit Appeals Court in New Orleans.
Arguments will be heard by a three-judge panel led by Chief Judge Carl E. Stewart. The case is third on the docket and each party will have 30 minutes to make their case.
The industry plaintiffs are consolidated from three lawsuits that were filed last summer in U.S. District Court for the Northern District of Texas. While the plaintiffs lost the federal court decisions, the Dallas court was chosen specifically because appeals would go to the Fifth Circuit.
The Fifth Circuit is generally considered the most conservative in the country, with decisions that frequently define the government’s role narrowly.
The first phase of the fiduciary rule went into effect June 9. It requires advisors and agents to act as fiduciaries, make no misleading statements and accept only “reasonable” compensation.
Still, opponents are aiming mostly at phase two rules that establish a class-action right to sue under the Best Interest Contract Exemption. The BICE will be required to sell fixed indexed and variable annuities beginning Jan. 1, 2018.
The DOL continues to work regulatory channels to reshape phase two of the rule and many expect the Jan. 1 date to be delayed. A win at the appeals level would reshape the entire DOL rule debate.
SEC Commissioner Comments
Commissioner Michael Piwowar of the Securities and Exchange Commission weighed in Wednesday with a comment letter to the DOL. Eugene Scalia, attorney for the U.S. Chamber of Commerce, submitted the Piwowar letter to the appeals court record.
The SEC is soliciting comment on a fiduciary standard of its own. Piwowar made three points in his letter:
• The DOL fiduciary rule is “dismissive of the efficacy of conflict of interest disclosure.”
• The rule fails to distinguish “selling” activities from “advice” activities, “undermining the commission’s longstanding approach to regulation of broker-dealers and investment advisors.”
• The rule effects “will extend beyond retirement accounts and will be disruptive of the broker-client relationship in general.”
“The comment letter supports appellants’ arguments that DOL has overstepped its authority, and unreasonably and unconstitutionally fashioned a new regulatory framework that clashes with decades of legislation and securities regulations,” Scalia wrote.
In its court brief, the DOL defended the Obama-era rule, writing that investors need protection from the "harms posed by conflicted transactions."There was some conjecture that Trump's DOL would abandon defense of the rule.
Sources expect the appeals court to hand down a decision by mid-September.
In addition to the chamber, other plaintiffs include the American Council of Life Insurers, National Association of Insurance and Financial Advisors, the Insured Retirement Institute, and many others.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].