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Biz Group Loses Stay Bid In DOL Fiduciary Rule Challenge

Biz Group Loses Stay Bid In DOL Fiduciary Rule Challenge

By Y. Peter Kang of

A D.C. federal judge on Wednesday denied a renewed request by a financial services industry group to block the U.S. Department of Labor’s rule expanding the definition of a fiduciary for retirement account investment advisers, saying the court had already determined the DOL’s interpretation was reasonable.

U.S. District Judge Randolph D. Moss denied the National Association for Fixed Annuities’ bid for a preliminary injunction blocking enactment of the rule while the group appeals his earlier ruling that rejected their case on the merits, saying NAFA isn’t likely to win the appeal.

Having already determined that the DOL’s interpretation of a fiduciary as one who “renders investment advice” for a fee was reasonable and sufficiently explained during the agency’s rulemaking process, the judge said none of NAFA’s arguments warrant issuing a preliminary injunction.

“NAFA has not presented any argument that causes this court to question the result it has already reached or to believe that the court of appeals is likely to reach a contrary conclusion,” the judge wrote in a 10-page ruling.

Judge Moss noted that NAFA raised more than a dozen arguments in the trial court but failed to identify which issues it intends to raise on appeal, or how those issues are connected to claims that its members will suffer irreparable harm unless an injunction is granted. He also said delaying the enactment of the rule would indeed have an effect on the public since the case involves regulations for investment retirement accounts.

“The new rules were adopted to protect retirement investors from conflicted advice and potential losses to their retirement savings,” Judge Moss said. “Enjoining the rule would delay this protection.”

Representatives for the parties did not immediately respond to requests for comment late Wednesday.

Earlier this month, Judge Moss said the DOL’s modification of the definition of who is considered a fiduciary — and therefore on the hook for any breach of fiduciary duty — was made within its statutory authority and was promulgated via a satisfactory rulemaking and notification process.

NAFA had contended that the change runs counter to what Congress intended when it drafted the Employee Retirement Income Security Act and would have “catastrophic consequences” for its members if enacted, but Judge Moss said the DOL’s interpretation of who qualifies as a fiduciary was reasonable and sufficiently explained during the rulemaking process.

“The department explained at length how the relationship between advisers and investors has changed,” the judge said in a 92-page ruling. “It found that 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 plan participants and IRA owners to unknown conflicts of interest.”

NAFA said it would lodge an appeal with the D.C. Circuit.

“We are obviously disappointed by the court’s decision, but we have always assumed this case would get decided by a higher court and we are pleased the issues will get de novo review by the circuit court,” NAFA Executive Director Chip Anderson said in a Nov. 7 statement.

The judge’s Nov. 4 ruling was the first victory for the DOL in the half-dozen lawsuits filed against it in the past five months by financial industry groups challenging the rule.

The fiduciary rule was promulgated in April and will be phased in starting April 2017. It requires financial professionals who advise retirement accounts to act in their client’s best interest when recommending investment products, a higher standard than the current approach of promoting products that are merely suitable to an investor.

In unveiling the rules, the Obama administration said it heeded advice from more than 3,100 comment letters after the hotly contested measures were first proposed in April 2015.

NAFA is represented by Philip D. Bartz and Jacob A. Kramer of Bryan Cave LLP.

The DOL is represented by Benjamin C. Mizer, Channing D. Phillips, Judry L. Subar, Galen N. Thorp and Emily Newton of the U.S. Department of Justice.

The case is National Association for Fixed Annuities v. U.S. Department of Labor et al., case number 1:16-cv-01035, in the U.S. District Court for the District of Columbia.



The team of investment fraud lawyers at Starr Austen & Miller LLP fights for the protection of investors and handles cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence and breach of trust.