In response to the recent charges levied against broker-dealer Scottrade Inc. by the Massachusetts Securities Division for alleged fiduciary rule violations, opponents of the highly contested regulation are urging an appeals court to vacate the rule in their ongoing case against the Department of Labor.
The fiduciary rule seeks to eliminate conflicted retirement advice and is currently under review as ordered by President Trump. The rule, which partially went into effect last year, mandates that all financial professionals who work with retirement plans or provide retirement planning advice act as fiduciaries.
Eugene Scalia, attorney for the Chamber of Commerce and other plaintiffs, issued a letter to the Fifth Circuit Court of Appeals in New Orleans arguing that the Massachusetts “enforcement action—which seeks censure, fines, and disgorgement, among other penalties – vividly illustrates the urgent need to vacate the rule.”
Secretary of the Commonwealth William Galvin charged Scottrade last week with dishonest and unethical activity for holding sales contests which included retirement assets after the fiduciary rule partially went into effect.
“Although Massachusetts’s attempt to use the fiduciary rule in this manner lacks merit,” wrote Scalia. “It confirms appellants’ concern that the portions of the rule that took effect on June 9, 2017 will continue to impose extensive burdens and costs on appellants’ members, even while other aspects of the rule have been postponed.”
Late last year, the DOL extended certain fiduciary rule provisions for 18 months until July 2019 but maintained that fiduciary advisers must continue to provide retirement advice that adheres to “impartial conduct standards.”
The standards include observing a best interest standard when making investment recommendations, charging no more than reasonable compensation for services, and refraining from making misleading statements.
The DOL said that during the extended period, it will not pursue claims against fiduciaries working “diligently and in good faith” to comply with the regulation.
“With such litigation being pursued by state officials, private plaintiffs can also be expected to exploit the rule to concoct state law claims,” said Scalia. “Far from the uniform federal standard of liability that Congress intended, the fiduciary rule is now spawning claims that will be enforced ‘under the splintered laws of 50 states.’ A decision by this court will put a halt to that, while also providing important guidance to the Labor Department in any future rulemaking proceedings.”
In addition to the Chamber of Commerce, plaintiffs in the case also include the Financial Services Institute, the Financial Services Roundtable, the Insured Retirement Institute, the Securities Industry and Financial Markets Association, and the Texas Association of Business.