Second Lawsuit Challenges DOL On Investment Advice Rule

The Federal Reserve has tough decisions to make.

By John Hilton

A second lawsuit in one week challenges the Department of Labor's authority to enforce its Investment Advice Rule governing transactions involving retirement account dollars.

The American Securities Association filed a lawsuit Tuesday afternoon in U.S. District Court for the Middle District of Florida. It claims the DOL overstepped its bounds with guidance issued in April 2021.

The guidance indicates that first-time advice to transfer retirement assets out of a federally regulated plan can constitute fiduciary advice, which the rule subjects to a strict standard of care. Issued as a series of Frequently Asked Questions, the guidance essentially created new rules, the ASA claimed in the lawsuit.

The trade group claimed the guidance essentially “rewrote” the regulation, in the process, imposing burdensome documentation and investigation requirements on their members.

"The [Administrative Procedures Act] prohibits agencies from regulating in this manner," the lawsuit reads. "If the Department wanted to change its rules, it needed to do so through the required notice-and-comment process—not through guidance documents."

Created by the Trump administration, the Investment Advice Rule has two main parts: a new prohibited transaction exemption allowing advisors to provide conflicted advice for commissions; and a reinstatement of the "five-part test" from 1975 to determine what constitutes investment advice.

The Biden administration allowed the investment advice rule to take effect Feb. 16, 2021.

It replaces the Obama administration fiduciary rule, which imposed substantial regulations on commission-based sales of annuities. A federal appeals court sided with industry plaintiffs and tossed out the rule in 2018.

The ASA touts itself as "the only trade association that exclusively represents the wealth management and capital markets interests of regional financial services firms." The group is chaired by Paul C. Reilly, CEO of Raymond James Financial.

🚨 Today we filed a lawsuit challenging the @USDOL’s failure to seek public comment before changing rules about #retirement advice. We hope the court will assert itself to protect America’s retirement savers from this administrative overreach. https://t.co/usF8CI6u62

— American Securities Association (@AmerSecurities) February 9, 2022

Initial Lawsuit

Last week, the Federation of Americans for Consumer Choice, joined by a number of independent insurance agents and agencies, sued the Labor Department in Dallas federal court. That court is within the Fifth Circuit, where the appellate court three years ago struck down the DOL’s prior fiduciary rule.

The Investment Advice Rule broadens the agency interpretation of who is considered a fiduciary, which the FACC lawsuit contends is contrary to the Fifth Circuit decision.

The lawsuit asserts the Labor Department’s latest rule “carries forward the core problem the Fifth Circuit identified in vacating the Fiduciary Rule the first time,” adding that “pouring the same old wine into a new bottle does not change the result.”

In 2018, the Fifth Circuit Court of Appeals tossed out the fiduciary rule, ruling that the DOL exceeded its authority by creating a new regulatory scheme for the retirement plan space.

FACC, a trade group representing independent life insurance agents and agencies selling annuities and other insurance products, contends that the latest DOL rule will harm average consumers even though promoted as increasing consumer protection.

Reached Tuesday, Eric Couch, who runs ProVision Brokerage in Flower Mound, Texas, said the DOL's new regulatory scheme creates an unfair playing field for his firm and others like it.

"We’ve already got processes in place to eliminate the rogue advisors," Couch said. "We don’t have an insane amount of complaints. Advisors do what’s in the client’s best interest. At my agency that’s the first and last thing and everything in between."

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]. Follow him on Twitter @INNJohnH.