A coalition of major financial industry groups, including the U.S. Chamber of Commerce, the Financial Services Roundtable and the Securities Industry and Financial Markets Association this week filed a lawsuit to block the Labor Department’s rule establishing a a higher standard for retirement investment advice.
The groups filed the lawsuit in the U.S. District Court for the Northern District of Texas on Wednesday. They asked the court to vacate DOL’s rule and “proceed quickly, given how burdensome and disruptive the rule is,” according to Eugene Scalia, an attorney for Gibson Dunn who is representing the groups. The groups’ complaint specifically says DOL “should be enjoined from implementing or enforcing” the rule and closely related regulations in any manner.
Scalia told reporters on a Thursday press call that the case centers on allegations that DOL overstepped its authority to regulate products such as IRAs, overdefined the term “fiduciary” beyond Congress’ intent, and established a private right of action that should have been created through the legislative process, rather than through a regulation.
Opponents of the rule say it will make it difficult for middle-class workers to get investment advice because the stricter standard makes it less likely that financial advisers will accept them as clients. The new liability costs too much. Advisers also could be put out of work.
Leaders from the groups suing DOL said they support a “best interest” standard for retirement advice on behalf of a client. But FSR President and CEO Tim Pawlenty said it “should be done in a way that’s simple, not costly, and not complex.”
Pawlenty added that DOL “overstepped its legal authority in implementing this rule.”
David Hirschmann, the president and chief executive of the Chamber’s Center for Capital Markets Competitiveness, told Morning Consult that one of the goals of the lawsuit is to make it clear that only a single agency — the Securities and Exchange Commission — has the authority to place a single fiduciary standard on the financial products the plaintiffs believe aren’t covered by the DOL’s authority to issue regulations under the Employee Retirement Income Security Act.
“If we’re going to achieve a single fiduciary standard, you have to do it in a place that can address all products,” Hirschmann said. The SEC is “the place that should build the house that we should all live in.”
A DOL spokesperson didn’t respond to a request for comment on the lawsuit. Dennis Kelleher, the president and chief executive of the Washington-based investor advocacy group Better Markets, called the suit “Wall Street’s desperate, last-ditch effort to kill” the rule.
Kelleher accused the plaintiffs of “court shopping” by choosing the Texas district court, whose appeals circuit is “believed to be especially friendly to businesses rather than consumers and investors.”
Scalia and Kenneth Bentsen, SIFMA’s president and CEO, said the groups filed the lawsuit in the Dallas court to show that it’s not an “inside-the-Beltway” case.
“Our view was that it’s important to underscore that this is a national, Main Street issue,” Bentsen said on the press call.
The suit comes a week after the Senate joined the House in voting in favor of a resolution, H.J.Res 88, to block the rule. The resolution is almost certain to be vetoed by the president, and neither chamber had veto-proof majorities when they adopted the resolution.
Hirschmann said the decision to file the lawsuit was unrelated to the resolution.
He also said a future Congress could “step in to provide clarity” to the fiduciary rule, but didn’t elaborate on what other solutions lawmakers in the next Congress could use to alter the regulation.
“From our perspective, we’ve always looked at this as a multitrack process, and this is a logical and necessary step given where we are with the rule,” Hirschmann said. “But in addition to the lawsuit, obviously, we will continue to work with the Department of Labor to give guidance where necessary.”