Last year, the U.S. Department of Labor unveiled a proposal that would extend a fiduciary standard to any persons who provide investment advice or recommendations to an employee benefit plan, plan fiduciary, plan participant or beneficiary, IRA, or IRA owner under the Employee Retirement Income Security Act (ERISA) of 1974 and the Internal Revenue Code, according to a release from the Labor Department. Since that announcement, the proposed fiduciary regulation was the subject of contentious debate with opposition coming from many different arenas. This past April, a final version of the Labor Department’s “conflict of interest” rule was unveiled which was supposed to have addressed some of the criticisms submitted during the public comment period. Early responses suggested that the final rule was definitely an improvement compared to the initial proposal but staunch opposition to the fiduciary regulation has not gone away.
For example, a resolution under the Congressional Review Act to block the Department of Labor’s “controversial rule restricting access to investment advice” successfully made it through the House of Representatives in April, and the Senate in the following month voted 56-41 to formally disapprove of the rule with three Democrats crossing the aisle to help the resolution pass. Shortly after, President Obama unsurprisingly vetoed Congress’ resolution, stressing that “the outdated regulations in place before this rulemaking did not ensure that financial advisers act in their clients’ best interests when giving retirement investment advice.” Since neither the House nor the Senate currently have enough votes to override that veto, the next way to potentially stop the fiduciary regulation will be through the use of litigation. Indeed, five separate lawsuits have already been filed in three different venues challenging the fiduciary regulation.
The first suit was brought by the U.S. Chamber of Commerce, the Financial Services Roundtable, and other industry trade groups which together argued that the consequences of the regulation “for savers, for small U.S. businesses, for financial professionals, and for the financial services firms and insurance institutions will be extensive and severe.” The legal process can often be quite slow but another suit filed by the National Association for Fixed Annuities has called for a motion hearing in late August, which means that we could have our first summary judgment ruling on at least one of the cases challenging the fiduciary regulation by Labor Day. Labor Secretary Thomas Perez has vowed to "vigorously" defend the fiduciary rule from the lawsuits filed against it. A recent financial industry poll conducted by the National Association of Plan Advisors found that around one in five respondents said “it’s about time” that litigation challenging the fiduciary rule was brought forward. Forty-three percent of surveyed professionals, though, reported that they were “glad to see it [litigation] happen, but don’t think it will matter.”
Sources: U.S. DoL, IRS, NAPA, White House, Think Advisor