Last-minute bid to save fiduciary rule fails
AARP and attorneys general from three states lost their bid to save the Department of Labor's fiduciary rule, seemingly sending the regulation to the dustbin of history.
A federal appeals court on Wednesday rejected requests by the retiree association and attorneys general for California, Oregon and New York to intervene on behalf of the regulation following a ruling by the same court that vacated the rule in its entirety in March.
A spokesman for AARP said the organization was disappointed in the ruling by the 5th U.S. Circuit Court of Appeals.
"AARP will continue its efforts to fight on behalf of consumers who want financial advice in their best interest. It is hard enough to save for retirement ― we should do all we can to make sure retirement savers are getting the help they need," the spokesman said in a statement.
The decision appears to put an end the Labor Department's fiduciary rule as the department has not moved to seek an appeal itself. The deadline for doing so passed on April 30. A spokesman for the government agency referred questions on the fate of the regulation to the Department of Justice.
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"Technically the DoL could look at it and say the 5th Circuit isn’t going to help, so let’s take it to the Supreme Court,” says Bradford Campbell, a partner at the law firm Drinker Biddle & Reath. He's also a former assistant secretary of Labor for Employee Benefits and former head of the Employee Benefits Security Administration.
"If the DoL does not appeal to the Supreme Court, there is also the chance the high court could take the case on its own," he adds.
But it would be an extreme long shot, Campbell says, citing the fraction of cases the court actually choses to hear.
The appeals court's ruling also refocuses attention on the SEC, which is currently taking public comment on newly proposed standards of conduct for brokers and advisors. The commission has faced mounting criticism from fiduciary advocates who say the proposal doesn't go far enough in upping investor protections.
Wall Street trade groups have more warmly welcomed the SEC proposals — which do not include a fiduciary obligation — than they did the Labor Department's fiduciary rule.
The Labor Department first proposed the fiduciary rule under the Obama administration. It went into partial effect last year and required brokers and advisors to put clients' interest ahead of their own when advising them on retirement accounts. But it met stiff opposition from Wall Street.
SIFMA, FSI and the U.S. Chamber of Commerce were among the plaintiffs that successfully sued the Labor Department to have the fiduciary rule vacated. On Monday, they contested the AARP and states' attempt to intervene in the case, arguing that those groups lacked standing. The AARP and states' "improper, last-minute motions do not come close to justifying their unprecedented bid to intervene for purposes of filing a motion for rehearing."
A spokeswoman said the organizations were pleased with the court ruling.
"The SEC, not the DoL, is the appropriate regulator in this area, and we look forward to working with the SEC on the current proposed rulemaking to establish a best interest standard across all accounts, and not just retirement accounts," she said in a statement.
--With additional reporting from Sean Allocca.