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Court Battle Over Fiduciary Regulation Looms

A number of industry trade groups have been contemplating litigation to stop the Department of Labor’s (DOL) fiduciary regulation even before there was a final regulation — that litigation could be filed as soon as today, according to reports.

The Wall Street Journal is reporting that the U.S. Chamber of Commerce, along with the Securities Industry and Financial Markets Association, are preparing to file a lawsuit as early as today, citing people familiar with the matter. As many as three other trade groups will likely also join the lawsuit, these people said.

According to the WSJ, the groups are expected to target the primary means of enforcing the heightened retirement-advice standards: a provision that allows investors to file class-action lawsuits when they believe an adviser runs afoul of the new rules. The report says that industry groups have claimed that the provision would subject the retirement plan market to expensive litigation, and that the DOL lacked congressional authority needed to include such a provision in the rule.

Specifically, the “best-interest contract exemption” enables retirement investors to sue their advisers. However, because the government lacks an enforcement mechanism to ensure that advisers are adhering to the new rule, some industry executives have argued that the DOL has effectively outsourced that role to the plaintiffs’ bar. The DOL has said that “the rule expands the circumstances in which” investors can sue their advisers.


How successful that litigation will be — and how long we’ll have to wait for the result — remain to be seen.

It seems unlikely, however, that advisors will have the luxury of deferring preparatory action until we can find out.