Several more opponents of the Labor Department’s newly released fiduciary rule are taking their grievances to Texas federal court, arguing the rule is too similar to a previous one vacated in 2018.
The plaintiffs in the suit filed last Friday include the American Council of Life Insurers, several regional divisions of the National Association of Insurance and Financial Advisors, the Insured Retirement Institute and Finseca, a trade group for financial services professionals.
The group filed their suit in Texas’ Northern District, as was the suit filed earlier this month opposing the fiduciary rule by the Federation for Consumer Choice, an Austin, Texas-based lobbying organization for independent insurance professionals.
The two suits’ positions mirror each other. In each complaint, the plaintiffs argue the version of the fiduciary rule the Biden administration proposed last fall and finalized earlier this year is too close to one passed during the last year of the Obama administration and vacated by the Fifth Circuit Court of Appeals in 2018.
“Put simply, the department’s current rule suffers from the same key legal defects as the 2016 rule,” the newest suit read. “It exceeds the agency’s statutory authority. It is the product of a rushed, outcome-oriented process.”
President Joe Biden announced the latest version of the fiduciary rule last October, framing it in a broader effort to curb “junk fees” in myriad industries. The DOL released its final version in late April. According to Acting Labor Secretary Julie Su, the rule would redefine the definition of fiduciary under ERISA to protect retirement investors from “improper investment recommendations and harmful conflicts of interest.”
NAIFA, the IRI and the ACLI, among others, were all plaintiffs in the suit that eventually vacated the Obama-era rule in the Fifth Circuit. If the two newest cases are eventually appealed, they will also wind up in the Fifth Circuit.
Some plaintiffs in the newest suit have been critical of how the rule was created and where it ended. According to Finseca CEO Marc Cadin, the organization was in a coalition with like-minded groups, including the ACLI, IRI and NAIFA (all plaintiffs in the case).
Cadin told WealthManagement.com shortly after the rule was finalized that no individual group would take legal action until each board’s group voted. But Cadin said he’d recommend to Finseca’s board that they should litigate.
Like the FACC suit, the plaintiffs note that since the 2016 rule, the SEC’s Regulation Best Interest rule and the model rule created by the National Association of Insurance Commissioners governing annuity recommendations make a DOL rule all the more unnecessary.
According to Max Schatzow, a co-founder of RIA Lawyers, most investment advisors offering advice to retail clients on an ongoing basis for compensation have historically met the test for whether they are fiduciaries under ERISA mandates, so the new rule would not likely be a big change for them.
“The type of people the old rule did not apply to was a lot of broker/dealers and insurance agents who basically took the position that their advice didn’t meet the five-part test for one reason or another,” he said.
According to the complaint, the plaintiffs want the courts to vacate the rule in its entirety and stop the Department from enforcing it. According to court documents, the courts are now asking the plaintiffs and the DOL to agree to schedule on the motion by June 3.