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DOL Rule Faces Legal Assault Over Scottrade Charges

February 21, 2018

Several industry groups are urging an appellate court to vacate the Department of Labor’s fiduciary rule, citing the recent charges against Scottrade by Massachusetts as an example of how the rule hurts the industry, WealthManagement.com writes.

The DOL’s fiduciary rule, which purports to require retirement account advisors to put clients’ interests first, went into partial effect in June. But following a directive from president Donald Trump, the Labor Department postponed the final implementation date of the rule, originally scheduled for last month, by 18 months. In what appeared to be a case of a state taking DOL enforcement into its own hands, the Massachusetts Securities Division last week charged Scottrade over alleged violations of the DOL rule’s impartial conduct requirements arising from sales contests the company had banned to comply with the rule.

And the case “vividly illustrates the urgent need to vacate the rule,” according to documents filed by Sifma, the Financial Services Institute, the Insured Retirement Institute, the U.S. Chamber of Commerce and others, who are all plaintiffs in a lawsuit against the DOL’s rule, in the U.S. Court of Appeals for the Fifth Circuit, WealthManagement.com writes.

Eugene Scalia, a partner at Gibson Dunn & Crutcher and the lead lawyer in the suit, writes that the DOL’s rule “is now spawning claims that will be enforced ‘under the splintered laws of fifty States,’” according to the web publication.


But the states are merely acting to protect their citizens, Stephen Wilkes, partner at the Wagner Law Group, tells WealthManagement.com. Because of their concern about the DOL “stepping back,” the states are taking initiative during the transition period, he tells the web publication. On the other hand, the DOL’s rule is a federal regulation and it’s unclear whether states can enforce it, Wilkes adds, according to WealthManagement.com. A decision from the U.S. Court of Appeals on the lawsuit is expected soon, the web publication writes.

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