Labor Department asks court to dismiss lawsuit over investment-advice guidance

A trade group's lawsuit against the Department of Labor over its 2021 guidance concerning investment-advice obligations should be dismissed, the agency said in its latest court filing.

The American Securities Association, which represents financial services firms, filed a lawsuit in February in U.S. District Court in Tampa, Fla., alleging the Labor Department violated federal law by issuing guidance that imposed new investment-advice obligations without seeking public comment.

The guidance — a series of frequently asked questions — relates to the Labor Department's investment-advice exemption that took effect in February 2021. The exemption permits investment-advice fiduciaries to receive compensation for more types of guidance, including advice to roll over assets to an individual retirement account from a retirement plan.

The ASA lawsuit alleged that the Labor Department did not adhere to the Administrative Procedure Act, which requires that federal agencies engage in notice and comment with the public during the rule-making process.

The Labor Department asked the court to dismiss the lawsuit in June, and the ASA filed a response in July.

"None of the department's defenses has merit," ASA said in its July filing. "The department puzzlingly claims that ASA lacks standing. But ASA's members are 'objects of the regulation' and so their standing is 'self-evident.' The department's pronouncements either prohibit or require actions from ASA's members. These are classic injuries in APA cases."

In an Aug. 19 filing of its own, the Labor Department asked the court to dismiss the lawsuit for lack of jurisdiction or to grant summary judgment to the department. The ASA lacks standing in the case because "it has failed to demonstrate injury with the specificity required by law," the Labor Department said in its filing.

Moreover, ASA's claim that the FAQs should have gone through the notice-and-comment process is without basis because the FAQs "merely provide tips" regarding the Labor Department's December 2020 interpretation of the 1975 fiduciary regulation and the new exemption.

"Plaintiff's arguments are an unpersuasive rehash of their opening brief," the Labor Department said. "Misreading the relevant legal authorities, as well as mischaracterizing the department's opening brief and arguments, these arguments should be rejected."

An ASA spokeswoman could not immediately be reached for comment.

The ASA lawsuit particularly took issue with two of the Labor Department's FAQs concerning rollover advice recommendations — one that outlines when rollover advice is considered to be on a "regular basis," a component of the five-part test used to determine whether an investment professional or financial institution is a fiduciary, and another that details the factors financial institutions and investment professionals should consider and document on how a rollover is in a client's best interest.

"The department imposes a host of burdensome documentation and investigation requirements on financial institutions when making rollover recommendations, despite the fact that the exemption the department promulgated contains no such requirements," the ASA stated in its lawsuit.