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DOL Rule Given Prickly Treatment in Appeals Court

August 3, 2017

An appeals court judge interrogated Department of Labor lawyers about the fiduciary rule’s effects on IRAs and the practicalities of the best interest contract exemption, requesting more detail within 10 days, ThinkAdvisor writes.

Judge Edith Jones was one of three judges on a panel of the U.S. Court of Appeals for the Fifth Circuit, which Monday heard an appeal brought by the U.S. Chamber of Commerce, Sifma, the Financial Services Institute and five other plaintiffs seeking to vacate the DOL’s fiduciary rule.

Previously, in the U.S. District Court for the Northern District of Texas, the plaintiffs' attempts to have the rule thrown out had been unsuccessful.

The DOL rule, which aims to force retirement account advisors to put clients’ interests ahead of their own, went into partial effect in June and still faces legal and legislative challenges. During the Monday hearing, Jones “relentlessly peppered” the DOL’s lawyers, Erin Sweeney, a lawyer with Miller & Chevalier who attended the hearing, tells ThinkAdvisor.

Quizzing counsel on the best interest contract exemption, which lets advisors sell some commission-based products after an agreement is signed with the client, Jones asked DOL lawyer Michael Shih if the BICE unlawfully gives private parties the ability to bring lawsuits, even though the DOL does not have the authority to create such a situation. Sweeney said that Shih insisted the BICE doesn’t unintentionally create any such improper abilities, because investment advice recipients have always had such abilities under state laws. But Jones countered that state laws only let clients bring legal actions against advisors when the client has a contract agreeing that their advisor is a fiduciary.

Yet Jones’ colleagues on the panel, Chief Judge Carl Stewart and Judge Edith Clement, made relatively few comments during the hearing, Sweeney tells the publication. Therefore it’s hard to predict how the judges will eventually rule at the next court session expected this fall, Sweeney tells ThinkAdvisor.

By Alex Padalka
  • To read the ThinkAdvisor article cited in this story, click here.