- Industry organizations file lawsuit in federal court in Dallas
- Groups say Labor Department encroached on SEC’s duties
Wall Street and business lobbying groups have teamed up to fight the Obama administration’s new rules for U.S. brokers managing retirement accounts, saying the regulations include a “deliberately unworkable” fiduciary standard.
The U.S. Chamber of Commerce joined groups including the Securities Industry and Financial Markets Association and the Insured Retirement Institute in filing the lawsuit Wednesday in Dallas federal court against the Department of Labor and Secretary Thomas Perez. The industry organizations allege that the department, which created the rules, encroached on the U.S. Securities and Exchange Commission’s territory and overstepped boundaries for regulating broker-dealers that were established by Congress.
The Labor Department released what’s known as the fiduciary duty rule in April, with administration officials saying it will help protect millions of savers from conflicted investment advice that costs the public $17 billion annually.
The White House has said the tougher standard will eliminate hidden incentives that cause brokers to push investment products with high fees and commissions. The industry argues that the rule will hurt less-affluent investors, because firms facing steeper compliance costs will drop smaller accounts.
“The rule will shackle Main Street financial advisers with extensive new requirements and constant liability, forcing them to limit the options and guidance they provide to retirement savers,” the groups said Thursday in a statement. “This lawsuit is necessary to prevent the Labor Department from exceeding the authority that was assigned to it by Congress.”
Financial firms have fought the new regulation for six years. As a result, lawsuits were widely expected and Republican lawmakers have introduced legislation to block the rule from taking effect. While both the U.S. House of Representatives and Senate have passed the measure, President Barack Obama has said he plans to veto the bill if it reaches his desk.
“This lawsuit seeks to vindicate their desire to put their own interests ahead of their clients’ best interests,” Perez said in a statement. “This rule-making was one of the most deliberate, open regulatory processes in recent memory.”
A related suit was filed in a Washington federal court Thursday by the National Association for Fixed Annuities, which is seeking an order blocking the new measures from taking effect as scheduled next year.
The Labor Department “abruptly changed course” when it decided fixed-indexed annuities should also be subject to the stricter standards required of variable annuities, the Washington-based association said in court papers.
Calling the new rule “unworkable” too, NAFA’s lawyers said that if it’s allowed to take effect in its present form, “jobs will be lost, careers will be altered, firms will close and vast resources will be invested in what will likely prove to be an unnecessary effort to comply with a rule that should not be allowed to stand.”
Better Markets, a group formed after the 2008 financial crisis to lobby for financial reform, is supporting the new measure.
“If Wall Street really cared about Main Street it would already act in clients’ best interest, rather than secretly pocketing tens of billions of dollars from hardworking Americans,” Better Markets President Dennis Kelleher said.
The cases are Chamber of Commerce of the United States of America v. Perez, 16-cv-1476, U.S. District Court, Northern District of Texas (Dallas) and National Association for Fixed Annuities v. Perez, 16-cv-1035, U.S. District Court, District of Columbia (Washington).