DALLAS—For workers and their allies who can’t stand Republican Trump administration edicts, the newest way to overturn them could be in the courts.
That’s because a federal judge in Texas — of all places — upheld yet another pro-worker rule, the Labor Department’s “fiduciary rule” that orders investment advisors to put their clients’ interests first. And that’s one of the rules GOP President Donald Trump wants to dump.
The Labor Department’s fiduciary rule is of particular interest to workers, as individual workers, retirees and/or union pension funds have often found themselves at the mercy of brokers who touted investments that benefited the brokers rather than their clients.
The Feb. 8 ruling by Chief Judge Barbara Lynn of the Northern District of Texas, located in Dallas, is the second judicial decision against a Trump executive order in a week.
The prior Saturday, Feb. 4, U.S. District Judge James Robart in Seattle issued a nationwide injunction overturning Trump’s order barring immigrants and refugees from seven majority-Muslim nations, an order that Trump himself called “a Muslim ban.”
And on Feb. 7, the Communications Workers and two allied groups sued in U.S. District Court in D.C. against Trump’s order telling federal agencies to dump two regulations for every one they promulgate, regardless of benefits. Implementing that edict, CWA said, imperils job safety and health and wage theft rules nationwide (see separate story).
“Congress gave the DOL broad discretion to use its expertise and to weigh policy concerns when deciding how best to protect retirement investors from conflicted transactions,” Lynn wrote in her 91-page decision.
Although the fiduciary rule “may cover more advisers and institutions and its conditions may be more onerous” than in the past, the agency proved the need for the rule and “did not exceed” its authority in issuing it, the judge added.
“DOL reasonably found that institutions and advisers” paid on commission “may very well make investment recommendations that benefit themselves, at the expense of plan
participants and beneficiaries,” Lynn explained. Advisers who get flat fees “are not faced with such a conflict of interest. Because small differences in performance will accumulate over time, those differences can have a profound impact on an investor’s retirement income.
“As the DOL noted, an ‘investor who rolls her retirement savings into an IRA could lose 6-12 (percent) and possibly as much as 23 percent of the value of her savings over 30 years of retirement by accepting advice from a conflicted financial adviser.” So DOL’s rule “is not arbitrary or capricious,” Lynn said.
“It is reasonable for the DOL” to not only regulate advisers to make sure they act in client interests, but to create incentives for them “to protect plan participants and beneficiaries,” Lynn stated. She then threw out the case, brought by the U.S. Chamber of Commerce and two other business lobbies.
Lynn’s ruling marked a reversal for business lobbies and their right wing allies. During the Obama administration, they routinely headed for Texas, a deep-red state, to find judges to overturn Obama administration pro-worker and pro-consumer rules. Texas usually joins them.
Worker and consumer groups hailed Lynn’s ruling, but it may not be the last word on the fiduciary rule. DOL is still examining Trump’s executive order — which, in so many words, tells DOL to dump it — and determining what to do next, its acting secretary says.
DOL’s rule “may significantly alter the manner in which Americans can receive financial advice, and may not be consistent with the policies of my administration,” Trump said. GOP lawmakers also hailed Trump’s order, but neither offered evidence of any harm from the rule.
Speaking after Trump’s order, but before Lynn’s decision, unions and consumer groups blasted the president’s move. That and a Trump executive order emasculating the Dodd-Frank banking regulations, would “allow Wall Street to get away with murder,” AFL-CIO President Richard Trumka said. He added workers lost $2 trillion to investment firms’ financial finagling.
“Our retirement savings evaporated overnight. The dreams of those who had worked hard for years were destroyed by Wall Street gambling. And out-of-touch corporatists played a game of craps with our hard-earned savings,” he said. “Allowing financial advisers to scam retirees encourages the ugliest Wall Street behaviors that led to the financial crisis.
The National Consumers League wasn’t happy, either.
“The fiduciary rule is a common-sense consumer protection that requires the professionals who are in charge of consumers’ savings to act in the ‘best interests of their clients,’” NCL Executive Director Sally Greenberg said. “Without this rule, retirement advisors will be free to ignore conflicts of interest and make decisions that benefit their firms’ bottom lines, not the financial security of millions of Americans.”
Congressional Republicans, as might be expected, cheered Trump’s order, but had no comment on Lynn’s ruling. House Education and the Workforce Committee Chair Virginia Foxx, R-N.C., called Trump’s move “necessary and appropriate” against “a devastating regulation.” Panel member Joe Wilson, R-S.C., introduced legislation to delay any fiduciary rule for two years. DOL’s rule was scheduled to start April 10.
Before the ruling, Acting Labor Secretary Ed Hugler took a dispassionate position. “The Department of Labor will now consider its legal options to delay the applicability date” of the fiduciary rule “as we comply with the president’s memorandum,” Hugler said.