Lawyers representing the Department of Labor and the nine plaintiffs suing Labor over its fiduciary rule recently filed briefs arguing their stance on whether Labor has the authority to regulate advice versus sales.
A three-judge panel heard oral arguments on Aug. 1 at the U.S. Court of Appeals for the Fifth Circuit in the U.S. Chamber of Commerce’s appeal, which resulted from an adverse lower decision issued by the U.S. District Court for the Northern District of Texas.
At the oral arguments, the court asked the parties to file letter briefs addressing whether the participant/IRA exemption in the Pension Protection Act — for level fee and computer model advice — proves that Labor has authority to regulate sales, or brokers.
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As Eugene Scalia, partner with Gibson Dunn who represents the nine plaintiffs, wrote in his Aug. 11 letter to the court, a specific question arose during the arguments as to whether those provisions “reflect Congress’ recognition of a distinction between sales and advice, contrary to the position of the Department of Labor (DOL) that ‘sales and advice go hand in hand in the retail market,’ and that in interpreting the term ‘fiduciary,’ it may “reject … the purported dichotomy between a mere ‘sales’ recommendation, on the one hand, and advice, on the other.”
Scalia argued that those provisions of the PPA “do indeed further illustrate that Congress recognized the distinction between sales and advice in ERISA and the Tax Code — just as it did in the Investment Advisers Act, and just as DOL itself did in one portion of the fiduciary rule.”
Labor, Scalia added, “may not base its rule on rejection of a distinction recognized by Congress, and accordingly, this error — among others — requires that the Fiduciary Rule be vacated.”