The U.S. District Court for the Northern District of Texas, in Dallas, held a hearing Thursday on the lawsuit that the U.S. Chamber of Commerce and eight other groups filed against the Department of Labor’s (DOL’s) new fiduciary rule. The first 45 minutes concentrated on the Chamber of Commerce’s argument that the new rule will make it difficult for advisers to provide holistic advice to investors, says Erin Sweeney, counsel at Miller and Chevalier, who attended the hearing.
In the following 35 minutes, Chief District Judge Barbara Lynn asked a series of questions about whether the DOL is interfering with advisers’ First Amendment right to free speech, Sweeney says. “The argument is that the DOL is impermissibly regulating speech,” Sweeney notes. “The DOL argued that they couldn’t possibly regulate speech, that they are only regulating the conduct of misleading advice. The judge pushed back on that and said that the DOL rule does more than regulate misleading speech; it punishes it.”

The final 30 minutes of the hearing were spent discussing fixed income annuities, Sweeney says. Judge Lynn said she did not want to upset the decision of U.S. District Judge Randolph Moss in a related lawsuit that that National Association for Fixed Annuities (NAFA) brought against the DOL’s new fiduciary rule to block it. On Friday, November 4, Judge Moss issued a 92-page ruling denying NAFA’s request for a preliminary injunction to stay the rule. NAFA has said it will appeal that decision in the U.S. Court of Appeals for the D.C. Circuit. “Judge Lynn was very concerned about not taking Judge Moss head on,” Sweeney says.

However, she did appear to side with the Chamber of Commerce’s argument that the DOL conducted no studies on the impact of the new rule with respect to annuities and conflicted advice, only with respect to mutual funds, Sweeney says. “The DOL kept saying that its mutual fund studies are analogous [to studies on annuities] but Judge Lynn kept asking the DOL where its studies on annuities are.”

Judge Lynn concluded the hearing by saying that she expects to reach a decision in the next 30 days, Sweeney says. The judge said that while she is troubled by the DOL’s failure to research the new rule and its impact on annuities, she is unsure whether she can alter the new rule in any way other than vacating it entirely, Sweeney says. She also noted that if the lawsuit were appealed to the Supreme Court, it would first have to be heard before the Fifth Circuit court, and that there wasn’t likely enough time to accomplish this before the April 2017 implementation.

Other plaintiffs in the Chamber lawsuit include the Financial Services Institute, Financial Services Roundtable, Greater Irving-Las Colinas’ Chamber of Commerce, Insured Retirement Institute, Lake Houston Area Chamber of Commerce, Lubbock Chamber of Commerce, Security Industry and Financial Markets Association and the Texas Association of Business.

Throughout the text of the lawsuit, plaintiffs suggest that the recommendations covered by the DOL rule “include many that have never been understood to entail fiduciary duties, such as whether to purchase an investment product, or offering a simple comparison between a firm’s own proprietary products. Indeed, the rule makes it impossible to sell most individual retirement investment products without being deemed a fiduciary.”

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