A Kansas judge could throw out the tougher regulation of fixed indexed annuities, while allowing the rest of the controversial fiduciary rule to stand.
Judge Daniel Crabtree heard three-and-a-half hours of testimony Wednesday in the Market Synergy Group vs. Department of Labor lawsuit. MSG is taking a nuanced stand with its request for a preliminary injunction, citing irreparable harm if FIA sales require a Best Interest Contract Exemption.
Under the DOL’s preliminary rule, FIAs remained under the Prohibited Transaction Exemption 84-24. When its final rule was published in April, FIAs surprisingly turned up under the BICE.
The BIC is seen as more costly and restrictive, requiring extensive disclosures and a signed contract between advisor and client.
Erin M. Sweeney, a lawyer with Miller & Chevalier in Washington, D.C., attended the Kansas City hearing and said Crabtree “appeared sympathetic” to Market Synergy’s arguments.
If Crabtree sides with the plaintiffs, it will go down as a partial win for the industry. Similar lawsuits in Washington, D.C. and Dallas courts seek judicial rejection of the entire rule.
If he grants an injunction, Crabtree’s ruling “would apply only to enjoin the DOL from enforcing Revised PTE 84-24 as it relates to fixed indexed annuities,” Sweeney explained. “The fiduciary rule and the BIC Exemption would proceed on schedule.”
If it survived a likely appeal by the DOL, such a ruling would mean FIAs would be sold under PTE 84-24, as in the tentative rule.
Proving irreparable harm is the key to winning an injunction. Market Synergy distributes FIAs and other insurance products through 11 IMO network members. Collectively, Market Synergy and these network members were responsible for approximately $15 billion of FIA sales in 2015.
Those circumstances have industry supporters hopeful that the MSG claim has a decent chance of success.
The DOL proposed new fiduciary rules in April 2015, which cover advice provided regarding qualified retirement employer-sponsored plans and individual retirement accounts.
DOL officials and public interest groups say the rules, which impose a fiduciary standard of care on financial advisors dealing with retirement accounts, are necessary to protect retirement investors from high commissions.
Critics say the DOL is trying to force the industry to move from a commission- to a fee-based model. The rules are scheduled to begin taking effect April 10, 2017.
The first lawsuit – National Association for Fixed Annuities vs. Department of Labor — was heard Aug. 25 in Washington, D.C. No ruling has been issued in that case yet.
NAFA asked Judge Randolph D. Moss to vacate the fiduciary rule, the BIC Exemption and Revised PTE 84-24, Sweeney noted.
“Judge Moss could decide to grant more limited relief and carve back the relief to Revised PTE 84-24 and/or to the application of Revised PTE 84-24 to fixed income annuities,” she added.
A consolidated case headed by the U.S. Chamber of Commerce as the lead plaintiff is slated to be heard by Judge Barbara M.G. Lynn Nov. 17 in Dallas.
“The parties in front of Judge Lynn have not filed for a preliminary injunction,” Sweeney said. “Instead, they have asked Judge Lynn to invalidate the rule based on summary judgment briefing.”
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com.
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This rule is totally political it’s another way for the Obama administration to pu nish anyone who works fie a living and ti grab money from the public by ultimately forcing 401k fuss into a sponsored government program much like Obama care the entire rule is based on a political agenda and as in all efforts of this ad ministration has little if sny basis in fact set forth by the dol in a gross over reach hopefully the courts of this country in like this president still have respect for the rule of law and I f.thst is the case it eill be struck down and it eill be for the better for our respected profession and for the public
Since when does the DOL have rule over the SEC and FINRA? Obama promised that he would fundamentally change America. With Obamacare, this administration lied to the American public about what it was. Even the architect of Obamacare said they knew they had to lie to the American public to get Obamacare through. Now the DOL is lying to the American public also with these rule changes. It is going to hurt the small investor in retirement plans. We have become a lawless society because of this administration.
Less than professional / unsuitable/ product pedaling sales of equity indexed annuities have lead to the current state of affairs.
Giving the CFP lobby ammo to jeopardize relationships. And ‘needs based’ (commission) selling.
Solve a problem for a client and get paid. Lowest cost / highest value for a majority of the public. Presuming that they are dealing with a professional.
How many AUM advisor’s are actually earning the 1-1.50% fee sheltered by a ‘fiduciary’ argument?
Professionals apply a fiduciary standard, without Congressional intervention.
Less than professional / unsuitable/ product pedaling sales of equity indexed annuities have lead to the current state of affairs….
So eloquently said….?
FIA commitments are a direct result of supply and demand. If existing asset classes offer the preservation of capital, predetermined amount of money paid for a lifetime without sacrificing access to principal, flexibility of global, international and domestic interests and peace of mind knowing that another 2008 experience will not wreck havoc on that portion of the asset basket, then retention of those assets could possible have been had.
“Product pedaling” is slander that is offensive to those that make available these proven alternative solutions. The choice to make an FIA available to the client has helped maintain the professional respect and status that is well deserved by this measure.
This is also an attempt by the gov’t to drive out the small businessman with more regulations, and larger government. The democrat socialist agenda moves onward.