The U.S. District Court for the Northern District of Texas, which is scheduled to hear a consolidated lawsuit against the Department of Labor’s fiduciary rule on November 17, 2016, will consider two amici briefs supportive of the rule.

As first reported in Think Advisor, BenefitsPro’s sister publication, six other submitted briefs were rejected by Judge Barbara Lynn.

The brief submitted by the Financial Planning Coalition, a consortium of three associations representing more than 80,000 financial planning professionals that are required to operate under a fiduciary standard, makes several arguments that strike at the core of the allegations raised by plaintiffs in the consolidated suit, which include the Securities Industry Financial Markets Association, the U.S. Chamber of Commerce, and the Insured Retirement Institute.

And a brief filed by American Association for Justice, formerly known as the American Trial Lawyers Association, which lobbies on behalf of plaintiffs’ bar interests, defends the class-action provision Labor crafted in the rule’s Best Interest Contract Exemption.

Coalition argues rule won’t harm small investors

Throughout the rule-making process, opponents of the DOL argued that requiring all advisors to IRAs and 401(k) plans with less than $50 million in assets to serve as fiduciaries would have the unintended consequence of limiting small investors’ access to investment advice.

And since its finalization, opponents have argued the rule will have the effect of banning commission-based compensation on investment products, which are considered prohibited transactions under the rule’s BIC exemption.

The Financial Planning Coalition argues both those arguments are not based in fact.

In order to comply with the BIC exemption, a preponderance of commission-based brokerage accounts are expected to move to a fee-based form of compensation.

Plaintiffs suing the DOL argue that will disincentivize brokers from servicing lower-value accounts.

But the Coalition argues that “thousands” of its members offer fiduciary-level advice to “everyday” Americans requiring no, or very low minimum assets under management.

The Coalition cited two studies that compared the client base of fiduciary and non-fiduciary investment professionals, both of which showed that each group services a comparable number of accounts with less than $100,000 in assets.

One study concluded that enforcing an industry-wide fiduciary standard would not reduce the availability of advisory services for lower-income investors, according to the Coalition’s brief, and the other found “no evidence that the broker-dealer industry is affected significantly by the imposition of a stricter legal fiduciary standard.”

Moreover, the Coalition’s fiduciary members provide services under a range of compensation models, including commissions on the sale of some products, according to its amicus brief.

Class-action provision does not interfere with Federal Arbitration Act

Judge Lynn accepted the amicus brief from the American Association of Justice (AAJ) because of its focus on a narrow legal issue related to the Federal Arbitration Act.

In order to qualify for prohibited commission-based transaction, the BIC exemption prohibits financial service providers from crafting language in the contracts that waive an investor’s right to bring a class-action claim.

The AAJ said the DOL was “well within its delegated regulatory authority” in crafting that provision.

The Federal Arbitration Act allows investment providers to write language waiving the right to bring class-action claims in private arbitration agreements. In conditioning the qualification for the BIC exemption on prohibiting such a waiver, the plaintiffs argue the DOL rule is in violation of the Federal Arbitration Act.

But the AAJ says the DOL rule does not interfere with the Federal Arbitration Act, because investment providers will still be able to enforce an arbitration provision that waives the right to bring a class action. They just won’t be able to qualify with the BIC exemption if they do so.

“The FAA poses no barrier here,” wrote the AAJ in its brief.

Instant Insights /

Judge accepts two amici briefs supportive of DOL fiduciary rule

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