A divided federal appeals court on Thursday voided the U.S. Department of Labor’s “fiduciary rule,” which had been adopted in 2016 under the Obama administration to curb conflicts of interest among providers of financial advice to Americans planning for retirement.
The decision is a major victory for the business and financial services industry groups that have sought to overturn the rule.
By a 2-1 vote, the 5th U.S. Circuit Court of Appeals said it found merit in several objections to the rule that were raised by business groups, including the U.S. Chamber of Commerce, and declared the rule void “in toto.”
Last year, after Donald Trump became U.S. president, the Labor Department delayed the scheduled implementation of some provisions of the rule to July 2019.
The Labor Department’s rule requires brokers to put their clients’ best interests first when advising them about individual retirement accounts or 401(k) retirement plans.
It is championed by consumer advocates and retirement non-profit groups, but has been staunchly opposed by the financial services sector, which argues it will make retirement advice too costly and harm lower-income retirees in particular.
Circuit Judge Edith Jones said the Labor Department acted unreasonably, arbitrarily and capriciously in expanding a 40-year-old definition of “investment advice fiduciary,” and did not deserve the deference that courts often accord federal agencies.
The long list of groups that sued the Labor Department include the U.S. Chamber of Commerce, the Financial Services Institute, the Financial Services Roundtable, the Insured Retirement Institute and the Securities Industry and Financial Markets Association.
“The court has ruled on the side of America’s retirement savers, preserving access to affordable financial advice,” the groups said in a statement. “Our organizations have long supported the development of a best interest standard of care and the Securities and Exchange Commission should now take the lead on a clear, consistent, and workable standard that does not limit choice for investors.”