A federal appeals court on Thursday voided the U.S. Department of Labor’s “fiduciary rule,” which had been adopted in 2016 under the Obama administration to curb conflicts of interest among providers of financial advice to Americans planning for retirement.
The 2-1 decision by the 5th U.S. Circuit Court of Appeals is a major victory for business and financial services industry groups, including the U.S. Chamber of Commerce.
They had argued that the rule was too burdensome, and could make providing retirement advice too costly, with particular harm to lower-income people.
The rule requires brokers to put their clients’ best interests first when advising about individual retirement accounts and 401(k) retirement plans. It has been championed by consumer advocates and retirement non-profit groups.
Writing for Thursday’s majority, Circuit Judge Edith Jones said the Labor Department acted unreasonably, arbitrarily and capriciously in expanding a 40-year-old definition of “investment advice fiduciary,” and did not deserve the deference that courts often accord federal agencies.
Jones wrote that while the department “has made no secret of its intent to transform the trillion-dollar market” for retirement investments, it was “not hard to spot regulatory abuse of power when an agency claims to discover in a long-extant statute an unheralded power to regulate a significant portion of the American economy.”
Chief Judge Carl Stewart dissented, saying the Labor Department acted “well within the confines set by Congress in implementing the challenged regulatory package.”
Last year, after Donald Trump became U.S. president, the department delayed the scheduled implementation of parts of the rule, to July 2019.
The department could ask the entire New Orleans-based appeals court to rehear the case, or appeal to the U.S. Supreme Court. It could not immediately be reached after business hours for comment.
Other opponents of the rule included the Financial Services Institute, the Financial Services Roundtable, the Insured Retirement Institute and the Securities Industry and Financial Markets Association.
“The court has ruled on the side of America’s retirement savers,” the groups said in a statement. “Our organizations have long supported the development of a best interest standard of care and the Securities and Exchange Commission should now take the lead on a clear, consistent, and workable standard that does not limit choice for investors.”
Stephen Hall, legal director for the advocacy group Better Markets, in a statement called the decision “a terrible setback in the fight for the simple, common sense principle that Americans saving for retirement deserve investment advice that is in their best interest.”
(Reporting by Jonathan Stempel in New York and Michelle Price in Washington; Editing by Grant McCool and Lisa Shumaker)