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Trump admin signals intent to nix key fiduciary rule provision

The Trump administration further indicated that a key enforcement provision of the Department of Labor’s fiduciary rule will be nixed, providing a boost to the opponents of the regulation.

The new development stems from a letter filed by the Department of Justice an ongoing case between the Labor Department and Thrivent Financial for Lutherans, which is asking a federal judge to nullify provisions in the rule that permit clients to pursue class action lawsuits.

Donald Trump mouthing Bloomberg News
U.S. President Donald Trump, speaks during a meeting with Senate and House legislators in the Roosevelt Room at the White House in Washington, D.C., U.S., on Feb. 2, 2017. Trump continued to court his pro-manufacturing base with yet another summit involving a chief executive officer, greeting Harley-Davidson Inc. executives and union officials to the White House on Thursday. Photographer: Drew Angerer/Pool via Bloomberg

The Justice Department, which is defending the government in the case, filed a letter to Judge Richard Nelson that "a stay of the litigation is the most efficient way to address this claim regarding a provision that is not currently applicable to plaintiff and which will likely be mooted in the near future."

Secretary of Labor Alexander Acosta allowed the first stage of the rule's implementation to go into effect in June, but is also pursuing a review of the regulation that President Trump ordered in February.

The move builds on earlier developments; in a separate case the Trump administration dropped hints that it would be amending the fiduciary rule to remove the class action provision.

"The writing was on the wall as early as July. Now we're just watching the process play out," says Micah Hauptman, financial services counsel at the Consumer Federation of America.

Wall Street trade groups and wealth management firms have been railing against the class action provision, saying it will open up the floodgates to costly new litigation.

QUICK TO DEFEND
Supporters of the fiduciary rule, however, were quick to defend the provision as a key enforcement mechanism.

"Class-action provision is 'most-reviled portion' of DOL #fiduciaryrule because it's the only aspect with any teeth," HighTower Advisors CEO Elliot Weissbluth tweeted Friday. The chief executive has been an outspoken proponent of a fiduciary standard.

The provision was critical because it allows investors to band together where there has been systematic misconduct, according to Hauptman.

"That's particularly the case for smaller claims," he says. "If an investor is wronged by a couple hundred bucks, then they might not go to arbitration because it's not worth it to them. If a firm unjustly decides to extract a couple hundred extra dollars from their customers, which could add up to millions of dollars, then we need a tool to make sure that doesn't happen. We need a tool to hold them accountable."

Thrivent filed its lawsuit in September 2016, arguing that the class action provision disrupts the unique relationship Thrivent has with its members. The firm is membership-owned and operates as a fraternal benefit society, which it claimed in court documents makes it significantly different from other mainstream commercial companies.

"Given the unique relationship between Thrivent and its members, Thrivent has long chosen to resolve the rare disputes that arise with its members in a way that preserves and strengthens its member relations," the firm's complaint said.

The Labor Department, meanwhile, is seeking another delay in the second phase of implementation of the fiduciary rule, pushing the deadline back to 2018 from January 1, 2017.

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