On Wednesday, a judge in Texas rejected a lawsuit seeking to overturn the controversial “fiduciary rule”, a Labor Department regulation introduced by the Obama administration and scheduled to go into effect in April that requires financial advisors to act in their clients’ best interests when advising them about retirement, Reuters reports:
The decision by Chief Judge Barbara Lynn for the U.S. District Court for the Northern District of Texas is a stunning defeat for the business and financial services industry groups that had sought to overturn it. And while it is not expected to stop the Labor Department from delaying the rule’s April 10 compliance deadline while it conducts the review, some legal experts say it could make it more difficult for the Labor Department to find a way to justify scrapping or significantly altering the rule.
This marks the second time now a federal district court has upheld the fiduciary rule. A third court, meanwhile, rejected an effort to stay the rule’s implementation. “Three courts have now carefully considered the full range of industry attacks on the DOL’s best interest fiduciary rule, and they have firmly rejected all of them,” said Stephen Hall, the legal director of Better Markets, a non-profit group that supports the rule.
The ruling comes just days after President Donald Trump issued an executive order calling for the rule to be reviewed, with a view toward rescinding it if its consequences for business are deemed too onerous. The business groups that sued to overturn the fiduciary rule had hoped for a court ruling to force the Labor Department to abandon the rule immediately, as the administration can still change or reverse the rule, but must do so through a formal federal rule-making process that takes more time.
Jacklyn Wille offers a more in-depth look at the administration’s options for getting rid of the regulation at Bloomberg BNA, explaining that even a temporary delay in the rule’s implementation date might need to go through the formal process, including a notice and comment period. The administration might also try to force through the change through the “good cause” exception to the Administrative Procedure Act, but that would require it to demonstrate that such a notice and comment period was “impracticable, unnecessary, or contrary to the public interest,” which attorneys tell Wille is a high bar to clear. Both the White House and Congress still have the power to get rid of the rule if they wish, but they might need to work a little harder to do so, and it may not take priority on the Republicans’ deregulatory agenda.
Meanwhile, most of the investment advisors affected by the rule are still preparing to comply with it, On Wall Street editor Andrew Welsch points out:
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.