A federally divided appeals court on Thursday expelled a rule from the Obama-era Labor Department that required financial investment advisers to act in the best interest of their clients.
In a 2 -1 ruling, the 5th Circuit Court of Appeals said that the fiduciary rule has the hallmarks of "unreasonableness" and constitutes an arbitrary and capricious exercise of power administrative.
The lawsuit arises from a challenge presented by the US Chamber of Commerce. UU And eight other commercial and financial groups against the norm.
The groups argued that the DOL erased the universally recognized distinctions between vendors and fiduciary advisers and the reconfigured relationships between financial and insurance representatives and their clients in establishing the new standards of behavior.
In the rule, DOL revised the meaning of an "investment advisory fiduciary" under the Employee Retirement Income Security Act of 1974 to include brokers and insurance agents. The change made them subject to new limits on the types of fee or compensation services they can provide when they advise on individual retirement accounts.
"Never before has the mere fact of being a seller been: recommending the purchase of your company's product" It has been considered an act that marks it as fiduciary, "the business groups argued in court documents.
a biting majority opinion, Judge Edith Jones agreed.
"Only in the semantically created world of DOL, vendors and insurance brokers have authority." or & # 39; responsibility & # 39; to give investment advice & # 39; ", Jones wrote in the opinion of the court.
" The interpretation of the DOL, in short, attempts to rewrite the law that is the sole source of its authority. This can not do. "
The Department of Labor, however, had argued that its rule was necessary to protect retirees and ensure that they received good advice.
Judge Carl Stewart disagreed with the court's decision.
He said that the Department of Labor acted well within its regulatory authority to create new standards for financial investment advisors to better protect consumers since the retirement investment market has changed in the last 40 years towards controlled retirement accounts and plans individually
mainly in pension plans controlled by large employers and professional money managers, today, individual retirement accounts ("IRAs") and plans run by participants, such as 401 (k), have supplemented pensions as Retirement vehicles of choice, resulting in individual investors have a greater responsibility over your own savings for retirement, "he said.
"This radical change in retirement investment The open market also created monetary incentives for investment advisers to offer contradictory advice, a potential that the regulatory control framework was not promulgated to address."
Updated at 9:07 p.m.