Wednesday’s win in Texas federal court for the Labor Dept.’s fiduciary rule is important and deserves attention. Judge Barbara M. G. Lynn’s extensive review of the industry case against the DOL rule, the fiduciary standard and investors is an unequivocal investor victory.
Lynn’s 81-page opinion carefully refutes key industry positions on the basis, workability, costs and requirements of BICE; defining “reasonable compensation” and the best interest standard. Legal precedent, cogent analysis and pertinent facts and circumstances give short shrift to the unsubstantiated assertions that so often dominate industry political arguments.
(Memo to the Trump Administration: Consider new “alternative facts” to rebuild your case.)
— See ThinkAdvisor’s complete DOL Fiduciary Compliance coverage.
Lynn’s writing is succinct and forceful. Selected highlights are noted here. The (underlined) plaintiff’s claims are followed by the judge’s rebuttal (labeled here, (The court disagrees.)
1. “Plaintiff’s claim … BICE … (is) arbitrary and capricious …
(The court disagrees.) However, the DOL reasonably found that institutions and advisors that are paid on a commission basis may very well make investment recommendations, at the expense of plan participants and beneficiaries…. It is reasonable for the DOL to incentivize certain compensation models over others” (See page 34 of the opinion.)
“The court also finds that the conditions to qualify for BICE are reasonable … BICE’s written contract requirement is reasonable … The imposition of the duties of loyalty and prudence are reasonable given DOL’s findings on the negative impact that conflicted transactions have on retirement investors …” (pp. 35, 36)
2. “Plaintiffs argue there is no meaningful guidance in the rules on what constitutes “reasonable compensation ….
(The court disagrees.) In fact, (however) the DOL has used the same “reasonable compensation” language in BICE in numerous exemptions from prohibited transactions going back to 1977. … Plaintiffs respond and says this provides no clarity. (The court disagrees.) The DOL considered this critique and rejected it … Courts seemingly have had little trouble applying the concept of reasonable compensation and other similar standards over the years, showing it far from unworkable.” (pp. 56, 57)