Several other opponents of the newly released Labor Department fiduciary rule are taking their appeals to Texas federal court, arguing that the rule is too similar to an earlier one released in 2018.
Plaintiffs in the lawsuit 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 lawsuit in the Northern District of Texas, as was the lawsuit filed earlier this month challenging the fiduciary rule by the Consumer Choice Federation, an Austin, Texas-based lobbying organization for independent insurance professionals.
The positions of the two suits mirror each other. In each complaint, the plaintiffs argue that the version of the fiduciary rule that the Biden administration proposed last fall and finalized earlier this year is too close to the one passed during the last year of the Obama administration and vacated by the U.S. Circuit Court of Appeals. Fifth in 2018.
“Simply put, the department's current rule suffers from the same major legal flaws as the 2016 rule,” the newest lawsuit said. “This exceeds the legal authority of the agency. It is the product of a fast-paced, results-oriented process.”
President Joe Biden announced the latest version of the fiduciary rule last October, fitting it into a broader effort to curb “junk tariffs” in countless 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 “inappropriate investment recommendations and harmful conflicts of interest.”
NAIFA, IRI and ACLI, among others, were all plaintiffs in the lawsuit that eventually vacated the Obama-era ruling in the Fifth Circuit. If the two newest cases are ultimately appealed, they will also end up in the Fifth Circuit.
Some plaintiffs in the newest lawsuit have been critical of how the rule was created and where it ended up. According to Finseca CEO Marc Cadin, the organization was in a coalition with like-minded groups including ACLI, IRI and NAIFA (all plaintiffs in the case).
Cadin said WealthManagement.com soon after the rule was finalized that no individual group would take legal action until each board group voted. But Cadin said he would recommend to Finseca's board that they take legal action.
Like the FACC lawsuit, the plaintiffs note that since the 2016 rule, the SEC's Best Interest Rule and the model rule created by the National Association of Insurance Commissioners governing pension recommendations make a DOL rule always and more unnecessary.
According to Max Schatzow, a co-founder of RIA Lawyers, most investment advisers who provide advice to retail clients on an ongoing basis for compensation have historically met the test of whether they are fiduciaries under ERISA's mandates, so the new rule is unlikely be a big change for them.
“The kind of people the old rule didn't apply to were 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 ask that the courts vacate the rule in its entirety and enjoin the Department from enforcing it. According to court documents, the courts are now asking the plaintiffs and the DOL to agree to set the motion by June 3.