A divided federal appeals court on Thursday tossed out an Obama-era Labor Department rule 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 the fiduciary rule bears the hallmarks of “unreasonableness” and constitutes an arbitrary and capricious exercise of administrative power.
The lawsuit stems from a challenge the U.S. Chamber of Commerce and eight other business and financial groups brought against the rule.
The groups argued the Labor Department erased universally recognized distinctions between salespeople and fiduciary advisers and reconfigured relationships among financial and insurance representatives and their customers in setting the new standards of conduct.
In the rule, the Labor Department revised the meaning of an “investment-advice fiduciary” under the 1974 Employee Retirement Income Security Act to include brokers and insurance agents. The change made them subject to new limits on the types of services for fees or compensation they can provide when advising on individual retirement accounts.
“Never before has the mere act of being a salesperson — of recommending the purchase of your company’s product — been deemed an act that marks you as a fiduciary,” the business groups argued in court documents.
In a scathing majority opinion, Judge Edith Jones, a Ronald Reagan appointee, agreed.
“Only in DOL’s semantically created world do salespeople and insurance brokers have ‘authority’ or ‘responsibility’ to ‘render investment advice,’” Jones wrote in the court’s opinion.
“The DOL interpretation, in sum, attempts to rewrite the law that is the sole source of its authority. This it cannot do.”
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