Investment Advisors Try to Block Rule Making it Easier to Sue Them

Updated on September 1, 2016

Investment Bankers Fight Back

A new lawsuit by investment advisors seeks to stop a U.S. Labor Department rule that would give their customers expanded rights to sue them in retirement investment cases.

The bankers argued during a hearing the rule exceeds the Labor Department’s authority and would deluge them with lawsuits.

The Labor Department says the rule would prevent conflicts of interest by finance companies that provide retirement investment advice.

The lawsuit was filed in U.S. District Court for the District of Columbia by the National Association for Fixed Annuities. The association’s lawsuit seeks an injunction to block the Labor Department rule.

The Labor Department enacted the rule in April 2015 It takes effect in April 2016.

The rule authorizes consumers to sue investment companies for breach of contract if they tell clients they are providing advice to advance their interests when the companies have a financial stake in the investments they recommend.

The companies would have broader responsibilities to disclose any conflicts of interest.

The rule is based on the Labor Department’s authority under the Employee Retirement Income Security Act (ERISA).

National Association for Fixed Annuities attorneys argued before Judge Randolph Moss last week that ERISA never was intended to give regulators authority to create a right to sue financial companies. Only Congress has that authority, the association argued.

Labor Department attorneys said the “necessary and appropriate” standard that Congress uses to transfer authority to agencies should decide the outcome of the case.

Under that standard, the rule is necessary as financial professionals increasingly provide direct advice to consumers on retirement investments, sometimes without disclosing how their companies might benefit, according to Labor Department attorneys.

Investment Advisors Fight Back Against Government in Lawsuit

Investment Advisors Fight Back Against Government in Lawsuit
Investment Advisors Fight Back Against Government in Lawsuit


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