Appeals Court Overturns Rule to Protect Workers from Conflicted Financial Advice

Mark Gruenberg Editor, Press Associates Union News

Big business beat the nation’s workers, retirees and savers in federal court as the 5th U.S. Circuit Court of Appeals has tossed out the Labor Department’s fiduciary rule – the one that requires your pension and IRA advisors to put your interests first.

The 2-1 decision by a panel of the judges on March 15 upset the National Consumers League, one of many consumer groups which lobbied for the rule, handed down during the Obama administration.

The appellate court, “with Chief Justice Carl Stewart offering a spirited dissent, issued a legally flawed decision that undoes a critically important Labor Department rule intended to protect the financial interests of retirees and other investors,” said NCL Executive Director Sally Greenberg.

“Simply put, the DOL rule requires financial advisors to put the interests of their clients first. This seems pretty straightforward, but the Chamber of Commerce and other industry interests have consistently opposed this common-sense requirement.”

“The majority misapplied the law, issued an opinion that conflicts with the decisions of every other court that considered the rule, and discounted the dramatic changes in the retirement landscape over the last 40 years. The results could potentially cost retirement savers as much as $17 billion annually.”

Greenberg called the ruling “a setback for all investors, especially those planning for or currently in retirement. It also threatens the Labor Department’s ability to protect investors now and in the future.”

“We urge the Justice Department to appeal this decision, put retirement savers’ interests first, and defend DOL’s authority to impose reasonable standards on those who make a living investing other people’s money.” GOP President Donald Trump’s Justice Department had no immediate comment on whether it would appeal to try reinstate the fiduciary duty rule.


Appellate Judge Edith Jones, a GOP Reagan administration nominee, said DOL went too far and brought too many firms into the reach of its fiduciary rule. The other judge who joined Jones was a George W. Bush nominee.

Jones came down for bankers and brokers in tossing DOL’s rule. It “already spawned significant market consequences, including the withdrawal of several major companies…from some segments of the brokerage and retirement investment market,” she said. “It is likely many financial services firms will exit the market” rather than follow DOL’s new rules.

She also said “the SEC has the expertise and the authority to regulate brokers and dealers uniformly.”

The dissenting judge, Stewart, nominated by Democratic President Bill Clinton, said Jones didn’t look at the real world, where IRAs – which leave retirement investment decisions up to individuals – have supplanted traditional pensions, except in cases where people have no retirement savings at all.

“This sea-change within the retirement investment market also created monetary incentives for investment advisers to offer conflicted advice, a potentiality” DOL’s pre-Obama fiduciary rule “was not enacted to address.” All Obama’s DOL did was to ban investment advisors’ conflicts of interest, close loopholes in the old rule and bring it in line with pension conditions of the 21st century.

The U.S. Chamber of Commerce and its corporate allies, which sued to stop the fiduciary rule, crowed. The Chamber then said another agency – the more technical and business-oriented Securities and Exchange Commission – “should now take the lead on a clear, consistent, and workable standard that does not limit choice for investors.” Neither the court majority nor the Chamber mentioned workers.

And right-wing congressional Republicans, led by House Financial Services Committee Chairman Jeb Hanserling, R-Texas, were also happy. He charged that DOL’s rule from “unelected, unaccountable bureaucrats…would harm the very people” – retirees and workers, though he did not say so – “it’s intended to help.”

Obama’s DOL instituted the rule after finding the fiduciaries – brokers, bankers, hedge funds and the like – put their own interests first when recommending investments to pensioners, pension plans and IRA holders.

Last June, some provisions began, requiring the fiduciaries “to provide advice that aligns with clients' best interests, charge reasonable compensation” and not make misleading statements. But after the judges’ ruling, DOL said it won’t even enforce that.