From staff and wire reports, drawing on reporting by Ashlea Ebeling at Forbes and others.
Pushback on the unpopular fiduciary standard got even more complicated this week after a Lone Star judge overruled industry objections, muddying the waters on a Trump-ordained delay and giving the Labor Department even more room than it asked for to determine how advisors work with qualified accounts.
Opponents of the Labor Department’s efforts to dictate exactly what kind of advice can steer 401(k) plans and individual retirement accounts thought they would get a sympathetic venue in North Texas. Even the bureaucrats were hoping for at best a chance to keep their rules alive for a few months to satisfy White House mandated review.
What they got was a bit of a shock. Judge Barbara Lynn knocked down every challenge to the DOL rule and reaffirmed the agency’s independent power to set the rules for accounts it formally oversees. In an 81-page ruling, her logic is ruthlessly clear: these government-sponsored accounts fall under DOL supervision, so it sets the rules.
Yes, she says, advisors have a constitutional right to free speech. But that right ends the minute they decide to accept qualified assets and agree to play by institutional rules.
The industry groups who brought the case aren’t happy, calling the regulation “arbitrary and capricious” as well as downright illegal.
They’ll probably appeal, but in the meantime, the green light for DOL raises deep questions about the strength of President Trump’s executive “suggestion” that the rule may need review or full rollback.
Trump wanted a six-month delay in the rule’s April 10 effective date. That’s all the DOL lawyers felt confident enough to argue for on their own behalf.
It’s going to be harder for anyone to challenge the rule as it stands now. Fee-only advisors are cheering the decision to effectively apply their self-imposed standards of conduct on the entire industry, including those who are compensated differently and work with a different range of investment products.
Opponents of the rule are still arguing that holding all advisors to an impossible standard opens up everyone to nuisance litigation from clients who got everything possible but still aren’t happy with their outcomes.
Maybe they’ll pull out of the retirement market and refuse IRA clients while they’re at it. Maybe that leaves the retirement market devoid of good advice.