The U.S. Justice Department is urging a Washington federal judge to reject a challenge to a sweeping new rule that requires investment advisors to work in their clients' best interests — a heightened standard aimed at protecting retirement savers from billions of dollars in fees.
The National Association for Fixed Annuities, represented by a team from Bryan Cave, sued the U.S. Labor Department in June. The complaint alleges that the DOL strayed outside its authority in abandoning a 40-year-old regulatory framework for retirement advice — the Employee Retirement Income Security Act.
DOJ said in its papers Friday that, as the market for retirement investment advice has evolved in the last four decades, it has become rife with conflicts of interest costing clients billions of dollars.
"Based on the extensive public comments and evidence garnered during that process, the Department determined that such conflicts of interest are widespread and could cost investors in individual retirement accounts (in one segment of the market alone) between $95 billion and $189 billion over the next 10 years," Justice Department lawyers wrote in their latest court papers.
"Until now, investment advisors have been able to operate under financial conflicts and retirement investors have been paying the price of their tainted advice. This is the problem the Rule and exemptions seek to ameliorate, and NAFA has not shown that it is entitled to enjoin the solution DOL crafted to do so," the Justice Department added. "Instead, NAFA asks for relief that would prolong and sustain the ongoing harm to retirement investors."
NAFA is required to respond to the government by July 22. A hearing in NAFA's case is scheduled for Aug. 25. The lawsuit seeks a preliminary injunction to stay the rule, which is currently scheduled to go into effect in April 2017.
NAFA's lawsuit alleges the DOL rule is invalid on grounds that the agency exceeded its authority to regulate IRAs and that it improperly categorizes insurance agents as fiduciaries.
The NAFA case is one of several that financial industry groups and business advocates brought against the rule. Other cases included actions in Texas and Kansas federal district courts.
