Nine industry groups, including SIFMA and the U.S. Chamber of Commerce, recently filed a lawsuit in Texas challenging the Department of Labor’s Fiduciary Rule on a number of grounds.  The Fiduciary Rule became effective on June 7, 2016 but is not scheduled to become applicable to industry participants until April 10, 2017.  Even by U.S. regulatory standards, the Fiduciary Rule, which totaled 1,028 pages, is complex and subject to various exceptions.  Nonetheless, the Fiduciary Rule defines who is a “fiduciary” for purposes of ERISA as a result of giving investment advice to retirement plans, their participants or beneficiaries, and would be applicable to investment advisers, broker-dealers, and each of their representatives.  Generally, the Fiduciary Rule requires those covered by the rule to provide impartial advice and act in the best interest of their customers.  For broker-dealer representatives in particular, this standard of care is generally higher than the traditional suitability standard.

In its lawsuit, plaintiffs assert that the Department of Labor failed to consider important evidence, ignored public comments on the Fiduciary Rule and “adopted a Rule that will impose unjustifiable costs on customers, small business, financial professionals, financial firms, and insurance institutions.”  Overall, plaintiffs assert that the Department of Labor exceeded its authority and that the Fiduciary Rule is arbitrary, capricious and contrary to law.  Similar to other recent successful challenges to administrative regulations, plaintiffs also assert that the Department of Labor failed to conduct a proper cost-benefits analysis.  Thomas Perez, the Secretary of the Department of Labor, has vowed a vigorous defense to the plaintiffs’ challenge.