The Department of Labor’s fiduciary rule is one step closer to death, as the department missed the deadline to file for a rehearing in the Fifth Circuit Court of Appeals, which vacated the rule last month.
“I’m not surprised,” said Micah Hauptman, financial services counsel at the Consumer Federation of America. “This administration has expressed a lot of hostility toward this rule, and they’ve made it clear that they want to get rid of it, any number of ways. Given an opportunity for a quick exit, they’re taking it.”
“This is the DOL’s rule, and there was a lot of blood, sweat and tears put into this rule; and for the DOL not to actively defend it, it’s disappointing and troubling,” said Andrew Stoltmann, president of the Public Investors Arbitration Bar Association and an attorney in Chicago. “The DOL is taking its marching orders from the president, and it’s clear the president thinks it’s a bad idea.”
Last week, AARP and the State Attorneys General of California, Oregon and New York filed separate motions to intervene in the case and seek rehearings in front of the full court, anticipating the DOL would not take action to defend its rule.
On Monday morning, the appellants in the case filed an opposition to those motions, arguing that they waited until the last moment, lack standing to intervene and have not shown “protectable interests” that justify intervention.
“The Movants have had ample opportunity to intervene in the multiple cases challenging the so-called ‘Fiduciary Rule’ in district courts around the country, in appeals in two other circuits courts, and in this appeal, which was decided by this Court more than a month ago,” the filing said. “And they have been on notice for more than a year that the government, under presidential direction, was reevaluating its approach to the Fiduciary Rule.”
While AARP and the states have different interests, both are seeking a rehearing “en banc,” meaning the case would be heard by all the judges of the court, not just the three that ruled last month.
The Consumer Federation of America plans to file an amicus brief in the court case in conjunction with other advocacy groups this week, highlighting reasons it believes the case was wrongly decided. The group argues that the claims the plaintiffs made to the court are inconsistent with statements they routinely make to the public about their services, Hauptman said.
“[The plaintiffs] have said to the court, ‘They’re mere salespeople, selling products, no different than a car dealer solicits interest in their inventory,’” Hauptman said. “They liken themselves to salespeople, but everything they do about their business suggests that they’re providing investment advice. They call themselves financial advisors, wealth managers. They say that they provide investment advice and retirement planning and they try to create these positions of trust and confidence. So to go into court and say the complete opposite is misleading and deceptive.”
At this point, the Court could grant either or both motions to intervene, or it could deny either or both motions. If the Court denies both motions, it still could decide to rehear the case on its own.
The DOL has until June 13 to take the case to the Supreme Court, but it’s unlikely to do so.
“[The rule] certainly isn’t dead, but it’s close to it,” Stoltmann said. “When you have the DOL saying they’re not enforcing this rule—that’s the de facto death knell.”
Meanwhile, the Securities and Exchange Commission recently voted to propose a rule package that would set a best interest standard for broker/dealers.