DOL Fiduciary Rule Upheld in Texas Federal Court


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What just happened?

On February 8, 2017 Chief Judge Barbara M.G. Lynn of the Northern District of Texas upheld the DOL fiduciary rule against lawsuits by SIFMA, the US Chamber of Commerce, the Financial Services Roundtable and others.  The judge issued an 81 page opinion addressing, and refuting, each of the plaintiffs’ arguments.

The judge also denied a motion to stay the proceedings that had been filed by the US Department of Justice filed just that day.

This is the third court to uphold the rule, following rulings in DC and Kansas in late 2016.  Marcia Wagner of the Wagner Law Group is quoted by Investment News as saying, “The DOL is batting 1.000 in the Courts.”   

What happens next?

There has speculation by some in the press that the DOJ’s motion was a prelude to an announcement that it would no longer defend the fiduciary rule.   While press reports at the time of this writing did not say whether the plaintiffs would appeal, filing an appeal that may not be contested would seem to be a possibility.

The DOL (which is still without a Secretary of Labor) has yet to announce the procedural means with which it will try to delay the April 10 Applicability Date in order to undertake the review requested by President Trump in his Presidential Memorandum of February 3. 

What should firms do now?

At this point, the fiduciary rule is going forward.  NRS strongly recommends that firms should continue to develop plans for meeting the applicability date.  Even if the dates are delayed, it is entirely possible that a modified version of the fiduciary rule will go into effect.  Moreover, some of the requirements of the fiduciary rule are likely to be seen as best practices by FINRA and the SEC, and may find their way into the securities laws.

That said, firms should be careful about implementing the changes required by the fiduciary rule over the next few weeks, as delays or changes may happen rapidly.

NRS suggests that a good rule of thumb is to develop plans for meeting the requirements of the applicability date that can be put into place within 30 days.  If the applicability date has not been delayed by March 10, and there is no clear indication that the applicability date will be delayed, then firms should begin implementing their plans.  If the applicability date is delayed, firms that have made plans for the new rule will be able to implement them quickly and efficiently (and make any needed modifications) should a new applicability date be announced.

 

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