© 2020 Arizent. All rights reserved.

Fiduciary rule will prevail even if repeal is attempted: Borzi

Register now

NASHVILLE, Tenn. – Even if the Trump administration seeks to repeal the Department of Labor's fiduciary rule, U.S. courts will still uphold it, says an architect of the controversial regulation.

If the rule is repealed, consumer groups will challenge the action in court, Phyllis Borzi, the former assistant Secretary of Labor of the Employee Benefits Security Administration, told more than 700 advisers attending the annual Fi360 Conference. Borzi maintained that the regulation's opponents "have no new evidence" on which to stake their case, and won't be able to meet the court's high standards for repeal.

Borzi said she and her staff constructed the regulation to withstand any eventual court challenges. "We were extremely meticulous in the way we approached the evidence," she said in her keynote address. "They [the rule's opponents] need to create a record that is as strong as the record we created over six years."
If opponents maintain that the best interest standards of the fiduciary rule are too burdensome, "I have complete confidence that the courts will not recognize that as a legitimate argument," Borzi said.

Borzi noted that financial service industry opponents have already been unsuccessful in three legal challenges to the regulation, including a case in Texas before a federal judge thought to be sympathetic to anti-regulatory arguments.

"They had their best shot in Texas," said Borzi. "Not one of their arguments was upheld."

A new administration's repeal of a complex regulation enacted by a previous administration is unlikely to be easily approved in federal courts without compelling new evidence, Borzi contended in an interview after her speech. "Courts are reluctant to overturn a rule that has already [met] rigorous standards," she said. "I don't think [the rule's opponents] have the data they need to get the outcome they want."

From recommending wrong share classes to cherry-picking allocations, these are the pitfalls advisers should avoid.
September 29

Borzi also pointed out that in President Trump's memo ordering the DoL to review the rule "the focus was only on the cost to the industry," leaving out the rule's benefits to the public.

She admitted making mistakes along the way when initially crafting the rule, “but one mistake we didn't make was we didn't stop talking to the public," Borzi said. "From 2009 to 2016 we turned down no meeting. We learned a lot and made a lot of improvements. As much as people may disagree with the final rule, no one can say with a straight face that we didn't listen."

No matter what happens, the fiduciary standard has already won public acceptance, according to Borzi. "Those who won't adapt a fiduciary standard will be punished by the market," she said.

Blaine Aikin, executive chairman of Fi360, agreed. "Competitive pressure," Aikin said, will keep the fiduciary standard moving forward "regardless of regulation."

As for what will happen before June 9, Aikin said he thought Secretary of Labor Alexander Acosta may try to delay the rule again. "The odds are against [further delay]," he said. "The question is how much."

For reprint and licensing requests for this article, click here.