Lawsuit Filed to Challenge New Department of Labor Rule

Prevents Financial Professionals from Best Serving Retirement Savers
Plaintiffs look to court to strike down over-reaching federal regulations

WASHINGTON, D.C., June 3, 2016 – The U.S. Chamber of Commerce, Financial Services Institute, Financial Services Roundtable, Greater Irving-Las Colinas’ Chamber of Commerce, Insured Retirement Institute, Lake Houston Area Chamber of Commerce, Lubbock Chamber of Commerce, Securities Industry and Financial Markets Association, and Texas Association of Business filed on June 1st a legal challenge to the Department of Labor’s fiduciary rule for brokers and registered investment advisers serving Americans with Individual Retirement Accounts (IRAs) and 401(k) plans.

Joint Statements

In a joint statement, the Chief Executive Officers of the five national association co-plaintiffs noted the following:

“Our organizations have a long, well-documented record of support for the creation of a uniform best interest – or fiduciary – standard of customer care for financial professionals providing personalized investment advice to retail investors. The Department of Labor’s new, 1,023-page rule, however, creates sweeping changes to existing regulations that will make saving for retirement more difficult for the very same hardworking American families and individuals it claims to protect. It specifically hinders many of our member firms’ ability to continue providing the level of holistic financial advice and suitable investment options their clients are accustomed to.

“Instead of helping savers plan for retirement, the new rule will unfortunately restrict their access to affordable retirement advice and limit their options for saving. The rule will shackle Main Street financial advisors with extensive new requirements and constant liability, forcing them to limit the options and guidance they provide to retirement savers.

“Advisors servicing small business plans will similarly be left with no choice but to limit or stop servicing the retirement plans offered by those job-creators, significantly reducing the retirement savings options available to their millions of employees. These consequences collectively reinforce that government officials failed to perform an adequate cost-benefit analysis during the rule’s development.

“Our organizations are now asking a court to review whether the Department of Labor overstepped its boundaries, creating a rule that will leave Americans with fewer retirement choices, higher costs and reduced access to professional financial advice. Further the ‘private right of action’ mechanism creates significant new legal risk for financial advisors, who will face the threat of class action lawyers challenging their every move.

the Department seeks to convert its authority to lift regulatory burdens into a means to impose them, resulting in the most sweeping change in retirement planning since the adoption of ERISA itself

“This lawsuit is necessary to prevent the Labor Department from exceeding the authority that was assigned to it by Congress. More importantly, it will protect retirement savers and our member firms, who are committed to their financial futures.”

Excerpts from the complaint (Civil Action No. 16 CV 1476)

  • The Rule the U.S. Department of Labor has promulgated in this case would upend this well-developed regulatory framework, with harmful consequences for retirement savers, small businesses, and tens of thousands of businesses—including many operating in North Texas and the Dallas-Fort Worth metroplex—that provide retirement advice, products, and services.
  • This Rule will limit consumer choice by forcing those who need retirement investment assistance to obtain it only by entering a fiduciary relationship, and bearing the accompanying costs, or to forgo it entirely. Studies show that a similar regulation adopted in the United Kingdom has had a real and negative impact on lower-income individuals’ ability to obtain much-needed retirement assistance—resulting in what one of the principal U.K. financial regulators has called an “advice gap” for the less affluent. See, e.g., Financial Conduct Authority, Financial Advice Market Review Final Report at 5-8 (March 2016), available here.)
  • Because the Department lacks affirmative authority to regulate financial services outside the context of employee benefit plans, it has sought to promulgate this new regulatory 5 Case 3:16-cv-01476-G Document 1 Filed 06/01/16 Page 5 of 74 PageID 5 regime through its exemptive authority under ERISA. That is, the Department seeks to convert its authority to lift regulatory burdens into a means to impose them, resulting in the most sweeping change in retirement planning since the adoption of ERISA itself. By doing so, the Department has disregarded the regulatory framework established by Congress, exceeded its authority, and assumed for itself regulatory power that is vested in the SEC in ways that will harm retirement savers.



The full complaint can be read here.