Second Lawsuit Filed Against SEC Investment Advice Rule

On September 11, 2019, XY Planning Network filed a lawsuit against the United States Securities and Exchange Commission (SEC) to invalidate its new fiduciary standards, known as the Regulation Best Interest Rule. The plaintiffs argue that the regulation fails to meet standards imposed under the Investment Advisers Act of 1940, and frustrates the intent of the Dodd-Frank Act.

The lawsuit argues that the SEC rule imposes a different standard of fiduciary responsibility for broker dealers than it does for financial advisers who might be selling the same or similar products. Financial advisers are held to a standard that the advice they provide to clients must be in the client’s best interests, but broker-dealers are not held to this same standard when providing advice. This is because broker-dealers are considered to be in the business of selling financial products rather than financial advice. The plaintiff claims that the new rule makes this distinction less clear, and as a result, “the rule thus circumvents a key goal of Dodd-Frank—leveling the playing field—and increases investor confusion.” The plaintiff claims it will be financially harmed as a result of the rule. The plaintiff represents over 1,000 financial advisers who expect to lose business to broker-dealers who are subject to the less stringent standards.

The lawsuit comes shortly after seven states and the District of Columbia filed a similar case seeking to invalidate the SEC rule. The SEC has yet to file a response in either case.