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DOL Fiduciary Rule

Obama Vetoes Resolution to Kill DOL Rule; New Lawsuit Filed

On Wednesday, the Department of Labor won a victory related to its conflict of interest rule but is also now facing a new challenge to the rule.

President Barack Obama vetoed a resolution in the House and Senate that would have killed the Department of Labor’s conflict of interest rule. Separately, the American Council of Life Insurers (ACLI) and National Association of Insurance and Financial Advisors (NAIFA) filed a lawsuit against the DOL in the U.S. District Court for the Northern District of Texas, the same court where the Securities Industry and Financial Markets Association (SIFMA) and eight others filed a suit against the agency last week.

“Because this resolution seeks to block the progress represented by this rule and deny retirement savers investment advice in their best interest, I cannot support it,” Obama said in a statement. “The outdated regulations in place before this rulemaking did not ensure that financial advisers act in their clients' best interests when giving retirement investment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. Instead, some firms have incentivized advisers to steer clients into products that have higher fees and lower returns—costing America's families an estimated $17 billion a year.”

Industry groups had expected Obama to veto the House and Senate’s effort to stop the DOL’s fiduciary rule. So last week, a group of nine plaintiffs, including the U.S. Chamber of Commerce, SIFMA and the Financial Services Institute, filed a suit challenging the rule.

The groups argue that the agency overstepped its boundaries and that the Securities and Exchange Commission is the agency with jurisdiction to develop a uniform fiduciary standard of care. A day later, the National Association for Fixed Annuities (NAFA) filed a federal lawsuit in the D.C. District Court, seeking a preliminary injunction against the rule. That suit argues that the rule would cause “irreparable harm” to its members, which include insurance companies, independent marketing organizations and individual producers involved in selling fixed annuities.

The latest suit claims that the DOL created a private right-of-action, which is Congress’s responsibility. The suit also alleges that the DOL failed to evaluate the adverse effects of the regulation on consumers, that the agency used outdated research about other kinds of investments, and “unreasonably and arbitrarily dismissed” the regulatory structure that the SEC, FINRA and state regulators already have in place.

“These multiple layers of consumer protections prohibit financial professionals from recommending transactions unless they are appropriate for a specific retirement saver,” ACLI President and CEO Dirk Kempthorne and NAIFA CEO Kevin Mayeux said in a joint statement. “The protections already prohibit giving untruthful or misleading information to Americans investing in retirement products.”

“The rule directly regulates commercial speech by imposing fiduciary obligations on recommendations about retirement products,” Kempthorne and Mayeux said. “The Department's rule will classify virtually all commercial interactions between those selling life insurance products and retirement investors as ‘fiduciary’ advice, despite the fact those relationships have never before been deemed fiduciary and do not bear the hallmarks of fiduciary status.”

TAGS: Industry
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