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DOL Fiduciary News: February 21, 2018

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Galvin's DOL fiduciary rule enforcement triggers industry plea for court decision

InvestmentNews; Feb 20, 2018 @ 2:17 pm

Industry opponents of the Labor Department's fiduciary rule are using last week's Massachusetts enforcement action to try to speed up an appeals court decision in their lawsuit.

The plaintiffs warned the Fifth Circuit Court of Appeals that the move by Massachusetts Secretary of the Commonwealth William Galvin to cite the DOL regulation in charging Scottrade Inc. with violating the state's securities laws was a sign that the partially implemented rule can raise regulatory and legal costs for financial firms.

"Although Massachusetts's attempt to use the fiduciary rule in this manner lacks merit, it confirms appellants' concern that the portions of the rule that took effect on June 9, 2017, will continue to impose extensive burdens and costs on appellants' members, even while other aspects of the rule have been postponed," wrote Eugene Scalia, a partner at Gibson Dunn and counsel for the U.S. Chamber of Commerce, the lead plaintiff, in a letter last Friday.

"The action also shows that the fiduciary rule is exacerbating the risk of litigation, even absent 'best-interest contracts,'" Mr. Scalia wrote, referring to an enforcement mechanism of the rule that has been delayed. "This enforcement action — which seeks censure, fines and disgorgement, among other penalties — vividly illustrates the urgent need to vacate the rule."

More states expected to bring claims against Scottrade; February 201, 2018

The administrative complaint brought by the Massachusetts Securities Division against Scottrade Inc. will more than likely be followed by claims from other states, according to attorneys familiar with the matter.

In court papers filed last week, the Office of the Secretary of the Commonwealth alleged Scottrade violated Massachusetts’ securities laws by failing to comply with the impartial conduct standards of the Labor Department’s fiduciary rule.

According to the complaint, the discount broker-dealer knowingly violated the fiduciary rule by running sales contests targeting retail investors’ assets in qualified retirement accounts.

The contests also violated the internal compliance policies the company put in place after the impartial conduct standard went into effect in June of 2017, the complaint says.

…Scottrade ran two sales contests—one launched days before implementation of the impartial conduct standards, and one launched in September of 2017.

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