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Groups file suit challenging U.S. retirement advice rule

WASHINGTON (Reuters) – The financial services industry, the U.S. Chamber Of Commerce and other Wall Street-affiliated groups have filed a legal challenge to the U.S. Department of Labor’s new rule on retirement advice, the groups said on Thursday.

The suit, filed late Wednesday at the U.S. District Court in Dallas, challenges the fiduciary standard rule that requires financial brokers who sell retirement products to put clients’ best interests ahead of the firm’s bottom line.

The Labor Department rule “makes saving for retirement more difficult for the very same savers it seeks to protect,” the Securities Industry and Financial Markets Association (SIFMA) said in a statement on Thursday. It is one of the plaintiffs in the suit, along with the Financial Services Institute, Financial Services Roundtable, Insured Retirement Institute and other groups.

The language in the new rule is tougher than a previous rule that only required brokers to ensure products are “suitable.”

The new, 1,023-page rule, “creates sweeping changes to existing regulations that will make saving for retirement more difficult for the very same hardworking American families and individuals it claims to protect,” executives from five of the groups said in a joint statement.

The complaint asks the court to invalidate the rule and block the Labor Department from enforcing it, said Eugene Scalia, a Washington-based lawyer at Gibson, Dunn & Crutcher LLP, who represents the plaintiffs.

A spokesman for the U.S. Department of Labor, which finalized the rule for retirement account advice in April, could not be immediately reached for comment.

Supporters of the rule say it will curb conflicts of interests among brokers who recommend products that generate more lucrative commissions and fees for their firms, instead of acting in clients’ best interests.

Scalia said during a call that the groups organized for reporters that the Labor Department erred in adopting a fiduciary definition that was too broad. Scalia, son of the late U.S. Supreme Court Justice Antonin Scalia, has won several challenges against tighter U.S. financial regulations.

The complaint also contends the Labor Department, which oversees U.S. retirement plan regulation, exceeded its powers because it does not have regulatory or enforcement authority over individual retirement accounts (IRAs), according to Scalia. The U.S. Treasury Department is the proper overseer, Scalia said.

The final Labor Department rule did include compromises on a range of provisions that came from wrangling with the industry for around six years.

Unlike the draft proposal, for example, the final rule does not restrict brokers from pushing proprietary products, splitting revenue with creators of funds they promote, or recommending risky, high-fee investments in alternative assets and certain annuities. (Additional reporting by Lisa Lambert; Editing by David Gregorio)

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