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Federal Court Rules in Favor of Preserving Retiree Fiduciary Rules

A U.S. federal judge has ruled in favor of maintaining a 2016 Department of Labor fiduciary rule to protect financial investment customers by requiring their advisors to act only in their clients’ best financial interest.

The court decision upheld a rule that obliges stockbrokers and financial professionals to disclose any conflicts of interests, like hidden fees and backend commissions. It is the second time a federal district court has defended the rule.

"The decision issued today is definitive and sends a message that ought to put a stake through the heart of industry's efforts to destroy this common-sense rule,” said Stephen Hall, the legal director at Better Markets, a nonprofit that promotes public interest in the financial markets.

The 81-page ruling came from Chief Judge Barbara Lynn for the U.S. District Court for the Northern District of Texas on February 8, 2017, just days after President Donald Trump ordered the Department of Labor to review the Obama-era rule.

The president’s request has been widely interpreted as a move to delay or kill the consumer-friendly rule, as part of a larger effort to diminish government regulation of the financial sector.

The decision also comes as a blow to the financial and insurance service industry and groups that spent millions of dollars fighting to overturn it. The fiduciary rule restricts the ability to charge consumer fees to manage assets while at the same time being incentivized with additional, often undisclosed, fees for steering those assets into funds sponsored by companies offering brokers backend commissions.

Among the groups that sued over the Department of Labor rule were pro-business and Wall Street Groups, including: the U.S. Chamber of Commerce, the Financial Services Institute, the Financial Services Roundtable, the Insured Retirement Institute, and the Securities Industry and Financial Markets Association.

These groups expressed their disagreement with the latest court ruling and said in a joint statement that they would “pursue all of our available options to see that this rule is rescinded.”

On Feb. 9, the Trump Administration Department of Labor officials submitted a rule to the Office of Management and Budget in an effort to stall the regulation, slated to go into effect April 10.

The case could be appealed to a higher court amidst a long road of pending legal challenges.