The first lawsuit filed to stop the Department of Labor’s controversial fiduciary rule goes before a judge today in Washington, D.C.
Judge Randolph J. Moss will hear the National Association for Fixed Annuities vs. Labor Department lawsuit in District of Columbia District Court. It is one of three lawsuits filed against the DOL.
The lawsuit seeks a preliminary injunction to stay the rule, which is scheduled to take effect in April 2017. NAFA is represented by Phillip D. Bartz and Jacob A. Kramer, antitrust lawyers with Bryan Cave, a legal firm based in St. Louis.
The lawsuit alleges the DOL rule is invalid on grounds that the agency exceeded its authority to regulate individual retirement accounts and that it improperly categorizes insurance agents as fiduciaries.
The lawsuit further alleges that the rule creates a private right of action, which only Congress can do.
The suit further alleges that DOL’s decision to include fixed indexed annuities (FIAs) under the Best Interest Contract Exemption (BICE) in the final rule – rather than under the less onerous PTE 84-24 as originally proposed – with no opportunity for meaningful comment and without adequate justification was arbitrary and capricious.
NAFA members were "blindsided" by the final treatment of FIAs, the lawsuit says.
"The impact will be highly detrimental to the FIA industry and its clientele. Insurance carriers will need to restructure their distribution models, because they will not be able to guarantee in a BIC that independent agents selling insurance products from different carriers have acted in the best interest of purchasers," the lawsuit reads.
"We do not oppose the main principle of what the DOL is trying to accomplish," said Mike Kalen, CEO of Futurity First, a field marketing organization and a NAFA member. "What we struggle with is the implementation of those goals."
Futurity is one of six FMOs or independent marketing organizations (IMOs) who have applied to be designated as financial institutions by the DOL. That would enable them to assume the liability for overseeing independent agents.
"The law as it was published does not allow an avenue for independent agents to provide (advice)," Kalen said. "We are hopeful that the end result of all the efforts is a more workable regulation."
Futurity owns three IMOs and, with $2.5 billion in sales, is one of the biggest sellers of fixed and fixed indexed products.
As fixed insurance products and not securities, FIAs and those who create, distribute and sell them stand to be uniquely harmed by this rule.
A Market Synergy lawsuit in U.S. District Court for the District of Kansas is slated to be heard Sept. 21. Three lawsuits filed by several plaintiffs in U.S. District Court Northern District of Texas were consolidated by the court and will be heard Nov. 17.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at email@example.com.
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