The Financial Services Institute (FSI) and Securities Industry and Financial Markets Association (SIFMA) have jointly filed a federal lawsuit challenging the Department of Labor’s new rule expanding the definition of a fiduciary.
The lawsuit, which claims the DOL rule “jeopardizes investors’ access to advice and education,” was filed June 28 in the Northern District of Texas.
The DOL rule defines advisors as fiduciaries if they provide investment advice to retirement plan participants and owners of individual retirement accounts. That would include IRA rollovers and the sale of annuities, two areas where the fiduciary standard is currently not required under the Employee Retirement Income Security Act of 1974. Under the proposal, advisors could sell such products only when it is in the client’s best interest.
The new rule is “materially indistinguishable” from a 2016 DOL rule that the Fifth Circuit struck down in 2018, according to a statement from FSI and SIFMA. DOL officials and other proponents have said the new rule has been tailored to address the Fifth Circuit’s finding that the DOL had exceeded its authority with overbroad regulations.
FSI and SIFMA noted that the Securities and Exchange Commission in 2019 adopted Regulation Best Interest (Reg BI), which they said eliminated the need for the DOL regulation.
The DOL lacks statutory authority to impose its rule and violated the Administrative Procedure Act because it failed to provide a rational justification and adequate cost-benefit analysis, the suit claims.
FSI and SIFMA ask the Court to vacate and set aside the 2024 Rule and declare it to be in excess of the DOL’s statutory authority, arbitrary and capricious, and otherwise not in accordance with law.
The full plaintiff-intervenors’ complaint filed in this case, American Council of Life Insurers, et al. v. United States Department of Labor, can be found here.
