The financial services industry, the U.S. Chamber Of Commerce and other Wall Street-affiliated groups have filed a legal challenge to the U.S. Department of Labor's new rule on retirement advice, the groups said on Thursday.
The lawsuit, filed late Wednesday at the U.S. District Court in Dallas, challenges the fiduciary standard rule that requires financial brokers who sell retirement products to put clients' best interests ahead of the firm's bottom line.
The Labor Department rule "makes saving for retirement more difficult for the very same savers it seeks to protect," said the Securities Industry and Financial Markets Association (SIFMA), a plaintiff in the lawsuit, in a statement.
Other plaintiffs include the Financial Services Institute, Financial Services Roundtable and Insured Retirement Institute.
The language in the new rule, effective in 2018, is tougher than a previous rule that only required brokers to ensure that products are "suitable." Some brokerages have said they would no longer advise smaller investors because of the rule since those accounts would not be sufficiently profitable.
The complaint asks the court to invalidate the rule and block the Labor Department from enforcing it, said Eugene Scalia, a Washington-based lawyer at Gibson, Dunn & Crutcher LLP, who represents the plaintiffs.
"Today, a handful of industry groups and lobbyists are suing for the right to put their own financial self-interests ahead of the best interests of their customers," U.S. Secretary of Labor Thomas Perez said in a statement.
Supporters of the rule say it would curb conflicts of interest among brokers who recommend products that generate more lucrative commissions and fees for their firms, instead of acting in clients' best interests.
The groups contend that the Labor Department, which oversees U.S. retirement plan regulation, exceeded its powers because it does not have regulatory or enforcement authority over individual retirement accounts (IRAs), Scalia said. The U.S. Treasury Department is the proper overseer, Scalia said.
The lawsuit also challenges a provision that allows investors to enforce the rule by filing class action lawsuits if they believe brokers did not act in their best interests.
Scalia, son of the late U.S. Supreme Court Justice Antonin Scalia, has won several challenges against tighter U.S. financial regulations.
The final Labor Department rule did include compromises on a range of provisions that came from wrangling with the industry for around six years.
Unlike the draft proposal, for example, the final rule does not restrict brokers from pushing proprietary products, splitting revenue with creators of funds they promote, or recommending risky, high-fee investments in alternative assets and certain annuities.
The lawsuit drew barbs from consumer groups.
"If Wall Street really cared about Main Street it would already act in its clients' best interest, rather than secretly pocketing tens of billions of dollars from hardworking Americans just trying to save for a decent retirement," said Dennis Kelleher, president and chief executive of Better Markets, a Wall Street reform group, in a statement.
Kelleher criticized the filing of the lawsuit in Texas, which set the stage for an appeal to the 5th Circuit U.S. Court of Appeals, viewed by many legal experts as perhaps the most conservative.
In November, the 5th Circuit it ruled 2-to-1 against President Barack Obama's plan to protect millions of undocumented immigrants from deportation.
Business groups and several states including Texas, Oklahoma and Arkansas, have also filed legal challenges in the 5th Circuit to two separate Obama administration rules concerning union campaigns, and lawsuits are expected over a new rule extending mandatory overtime pay to more than 4 million U.S. workers.