Contact FreedomWorks

400 North Capitol Street, NW
Suite 765
Washington, DC 20001

  • Toll Free 1.888.564.6273
  • Local 202.783.3870

Blog

Obama Vows to Veto Bill to Block Fiduciary Rule, Industry Groups Prepare to Sue

Last week, the Senate voted to rescind the Department of Labor’s “Fiduciary Rule” using the Congressional Review Act. Under the Congressional Review Act, the House and the Senate reserve the right to jointly overrule unnecessary or burdensome acts of regulatory overreach.

Unsurprisingly, in this case, Congress’ efforts to deregulate will be blocked by Obama’s veto. Following a veto, litigation remains the most viable recourse for killing the regulation.

Industry groups such as the U.S. Chamber of Commerce, the Securities Industry, and the Financial Markets Association are preparing to file a lawsuit as early as Wednesday, according to a report by the Wall Street Journal.

The legal challenge to this rule is grounded in a “best interest” provision that would replace the previous, more flexible standard of providing “suitable guidance.” The change in this requirement would allow investors to file class action lawsuits against financial advisers.

Under the Labor Department's new rule, many investment advisers will be deemed fiduciaries for the first time. Financial advisers and broker dealers whose activities did not constitute a fiduciary duty under previous DOL rules are now subject to the stricter standards of fiduciary status.

This rule carries daunting industry-wide implications, as many existing compensation agreements are not compatible with the stipulations imposed by fiduciary status. An investment adviser that is deemed a fiduciary adviser may not receive transaction-based compensation that varies based on their investment advice. They may also not receive compensation from third parties that provide investment products.

As the financial services industry suffers from bureaucratic overreach, regulators will wield one much broader impact: retirement investment advice will become unaffordable for many of America’s senior citizens. If enacted, retirement investment advice would become a right reserved for the wealthy, placed far outside the reach of middle-class Americans.

Last month, FreedomWorks Foundation criticized the Department of Labor rule:

Like so many others examples of regulatory overreach, this rule is disguised as protection for consumers, when it really is a tangled web of red tape that deprives America’s seniors of the freedom to plan for their retirement. We hope the Labor Department’s attempted takeover of seniors’ financial planning will be stopped by congressional action or litigation.