Joel Bernstein weighs in on recent lawsuit challenging the U.S. Department of Labor fiduciary rule

Industry groups filing a lawsuit challenging the U.S. Department of Labor’s fiduciary rule have covered all their bases in an effort to increase their chances of success, backing up novel administrative law claims with a First Amendment claim and filing in an injunction-friendly Dallas federal court. The U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association, and six other national and local industry groups filed the lawsuit recently to halt the final rule imposing a fiduciary duty on financial professionals who advise retirement account savers. They argue the DOL overstepped its authority and that the new regulations will harm retirement savers.

The complaint said the requirement that financial professionals 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—will cost broker-dealers billions of dollars to implement and could hamper their ability to provide advice to investors.

Joel H. Bernstein, a partner at Labaton Sucharow, said that the suit may be hampered by a Fifth Circuit decision from the 1980s that, in discussing allegations that a broker-dealer was making multiple unnecessary transactions in a customer’s account to rake in fees, recognized that broker-dealers have a fiduciary duty under Texas common law.

“These plaintiffs, the Chamber of Commerce and others like them, are making a mountain out of a molehill,” Bernstein added. “For financial professionals to say they don’t want the law to require them to tell the truth, be trustworthy, and protect money that someone deposits with them is totally ludicrous.”