On November 5, 2016, the United States Department of Labour (the “DOL”)’s Fiduciary Rule for retirement accounts survived the first of a series of legal challenges at U.S. District Court in California. As described on our prior post, the DOL’s Fiduciary Rule imposes a duty on investment advisors to act in their clients’ best interests when providing investment advice or recommendations on retirement accounts for a fee or other compensation. The Court upheld the authority of the DOL to make the rule and endorsed the DOL’s analysis supporting the Fiduciary Rule, stating that, “the relationship between advisers and investors has changed…and the increased complexity and variety of financial products in the marketplace has sown confusion, increased the potential for very costly mistakes, left retail investors more dependent on expert advice, and exposed [investors] to unknown conflicts of interest”.

The Court rejected arguments presented by the U.S. National Association for Fixed Annuities (“NAFA”) that the Fiduciary Rule ran counter to the intention of Congress when it drafted U.S. pension legislation and could “sweep in” relationships that aren’t of a fiduciary nature, concluding that potential overbreadth would have no bearing on NAFA or its members. The DOL Fiduciary Rule is also being challenged in a consolidated lawsuit in a Texas federal court filed by industry and trade groups including the U.S. Chamber of Commerce and the Securities Industry and Financial Markets Association, as well as several smaller suits.

The Canadian investment advisory industry is watching U.S. developments closely, as the DOL’s Fiduciary Rule is similar to the regulatory best interest standard proposed by the Canadian Securities Administrators (CSA) in a consultation paper published in April 2016. As we have written previously, the controversial proposal would require registered dealers, advisers and their representatives to deal fairly, honestly and in good faith with their clients and act in their clients’ best interests. The CSA received 118 response letters during the comment period which closed September 30, 2016. Letters came from dealers, advisors, product manufacturers, investor protection groups and law firms representing a broad cross-section of views on the proposed best interest standard. Five CSA members including the Ontario Securities Commission, which strongly supports the best interests standard, and the British Columbia Securities Commission, which opposes the proposal, are hosting roundtable sessions in late November and early December during which the debate will surely continue.