Judge rules against fiduciary foes, puts onus back on Trump

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A federal judge denied a lawsuit brought by industry trade groups seeking to overturn the fiduciary rule, putting the onus on the Trump administration to make any changes to the regulation.

The decision came just hours after the Department of Labor asked the judge to hold off on a ruling so that it could comply with President Trump's recent memo instructing the department to review and possibly rescind the regulation.

The lawsuit was filed in a Dallas federal court in June by several industry trade groups including the U.S. Chamber of Commerce, SIFMA and FSI.

The groups have long opposed the Labor Department's rule, preferring that the SEC take the lead on crafting a fiduciary standard for investment advice. The plaintiffs argued that the rule would have "harmful consequences for retirement savers" and small businesses.

In addition, the trade groups said the Labor Department regulation curtailed their members' freedom of speech.

Chief Judge Barbara Lynn found their arguments "unpersuasive."

"At worst, the only speech the rules even arguably regulate is misleading advice," Lynn wrote in her 81-page ruling.

Lynn also rejected the trade groups’ other arguments, such as claims that the Labor Department exceeded the authority it has to regulate retirement assets under ERISA, a 1974 law.

"Plaintiffs argue the fiduciary rule exceeds the coverage of ERISA because it imposes fiduciary status on those who earn a commission merely for selling a product, regardless of whether advice is given. Actually, the fiduciary rule plainly does not make one a fiduciary for selling a product without a recommendation," Lynn wrote.

The fight isn't over
Even with a ruling in the fiduciary rule's favor, its fate is still uncertain.

Trump has instructed the Labor Department to conduct a review of the rule and rescind it if they find it conflicts with some of his policy goals.

Lynn’s ruling heartened fiduciary advocates, who have loudly criticized Trump's moves to possibly roll back the regulation.

"Huge win!" said Micah Hauptman, financial services counsel at the Consumer Federation of America.

Hauptman said in a statement the ruling proved that the Labor Department was "on solid footing" when it promulgated the rule.

"The judge's opinion demolishes all of the arguments that the industry litigants have made against this rule. It's clear that the DoL did a rigorous economic analysis that proved the need for the rule. The decision also exposes all the industry's sky-is-falling claims as having no merit," Hauptman said.

His colleague, Barbara Roper, director of investor protection, added that the judge's ruling also underlines how unfounded the Trump administration's attacks on the regulation are.

"At worst, the only speech the rules even arguably regulate is misleading advice," Chief Judge Barbara Lynn wrote in a ruling in favor of the fiduciary regulation.

Despite this setback, the trade groups remained defiant.

“We continue to believe that the Department of Labor exceeded its authority, and we will pursue all of our available options to see that this rule is rescinded,” they said in a joint statement. They added that Trump’s “recent directive to the department, reflecting well-founded, ongoing and significant concerns about the rule, is a welcome development.”

Trump’s action sparked a backlash from fiduciary advocates and Democratic lawmakers in Congress, who criticized the president's decision as removing a key investor protection.

Meanwhile, a number of top executives say they plan on retaining most of the changes they have been implementing in advance of April 10, when the rule goes into effect.

Speculation surrounding the rule has also not altered most advisers' compliance plans. Some 63% of RIA and broker-dealer clients of Fidelity Institutional Asset Management reported that the recent developments had very little impact or none at all, according to an annual survey of more than 1,000 advisers released this week by the custodial giant.

Only 14% of the advisers were proceeding much slower with their compliance plans, and just 1% had halted their efforts completely.

Representatives for SIFMA, FSI and the Chamber of Commerce were not immediately available for comment.

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Fiduciary Rule Lawsuits Regulatory actions and programs Donald Trump Barbara Roper FSI DoL SIFMA U.S. Chamber of Commerce FPA CFP Board