Courts Will Not View DOL Fiduciary Rule Repeal Favorably: Borzi

Further delay will create ‘uncertainty’ that will be ‘really problematic,’ the rule’s architect said at fi360 conference

Former EBSA head Phyllis Borzi. (Photo: AP) Former EBSA head Phyllis Borzi. (Photo: AP)

The chief architect of the Labor Department’s fiduciary rule, Phyllis Borzi, sees a tough road ahead for the Trump administration in repealing the rule.

“If the administration decides to flip it [the fiduciary rule] or make changes, they will be sued and the courts won’t view this favorably,” Borzi, former head of Labor’s Employee Benefits Security Administration, said Sunday at the fi360 conference in Nashville.

Borzi, who accepted the Committee for the Fiduciary Standard’s fiduciary of the year award before remarks at the event, conceded that “none of us really knows what’s going to happen with the [fiduciary] rule.”

On June 9, if the rule isn’t delayed further, the impartial conduct standards kick in, which means advice has to be given in a client’s “best interest, firms must charge reasonable compensation and not lie,” Borzi noted. Firms “can do it any way they want.”

A further delay beyond June 9 will create “uncertainty” that will be “really problematic,” Borzi said. 

Blaine Aikin, fi360’s CEO, agreed during his opening remarks at the event that if there is a delay, which news reports say Labor Secretary R. Alexander Acosta is seeking, “that would be a major mistake.”

Delay, he said, “almost certainly means litigation from consumer organizations,” resulting in “an extended period of uncertainty.”

In comments to reporters after her remarks, Borzi said that “the courts generally are not willing to agree to let a new administration overturn an old administration’s rulemaking with no new evidence” that the rule is causing harm.

In assessing a repeal of the rule, “the courts are going to look to see whether there’s new evidence or whether the department did not do a thorough job in the evidence it had before it. We have now three district courts who have specifically held that we did.”

Borzi said that during her last two years of the Obama administration, “My goal … was to make sure that we had carefully gone through all the public comments and addressed each and every one of the public comments somewhere — in the preamble, the rule or economic analysis. [The Trump administration] has to match that.”

Repeal of the rule now is “a heavy burden,” Borzi said. “I think some in the industry and some at the White House thought: ‘Our guy won, that’s the end of the story.’ I don’t know that it’s the end of the story in a rule with this complexity, with this much of a public record of consideration.”

That being said, however, “Who knows — a court could do anything.”

Borzi also told reporters that “it would be wonderful” if the Securities and Exchange Commission moved on its own fiduciary rule, but she sees the agency “even more polarized” now.

“If your goal is to have all of the people giving advice subject to the same standard, neither of us [DOL or SEC] can do it by ourselves. We have to both have similar rules,” Borzi said.

While Labor regulates the retirement space and the SEC securities, “securities held by pension funds” are under the jurisdiction of both DOL and SEC.

Duane Thompson, senior policy advisor for fi360, noted that Borzi's comments about the SEC moving on its own fiduciary rule "reinforces her remarks at the Fi360 conference that investment advice should be subject to a fiduciary standard. However it's easier said than done, if you are going to make the standard uniform. If the DOL rule survives, the SEC would have to upgrade its own standard to make the market conduct rules truly uniform."

Eric Marhoun, chairman of NAFA’s DOL steering and litigation committee, who’s also executive vice president and general counsel for Fidelity & Guaranty Life in Des Moines, told ThinkAdvisor in a Friday interview that “based on recent conversations and meetings with representatives of the administration and Congress, it is my impression that the administration is considering all options for further delaying the DOL rule, including an interim final rule or Section 705 relief – which I believe to be the top choices for delay at this point.”

While other industry trade groups have been pushing Labor Secretary R. Alexander Acosta to adopt an interim final rule to bypass comment period restrictions, NAFA is pressing Acosta to consider invoking a provision of the Administrative Procedures Act known as Section 705, which allows delay of any administrative action that is being challenged in court. 

--- Check out DOL's Borzi: Rule or No Rule, There's No Going Back on Fiduciary on ThinkAdvisor.

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