The Department of Labor's fiduciary rule will damage fixed indexed annuities' primary channel of distribution, one that is rarely cited in consumer complaints, according to one of eight affidavits filed to support a lawsuit against the rule.
The affidavits were filed today to support Market Synergy, which is among five groups who have sued to stop the DOL fiduciary rule from taking effect. Represented by Carlton Fields Jorden Burt, a Washington D.C. law firm, Market Synergy sued in the U.S. District Court for the District of Kansas.
The lawsuit and subsequent filings ask the court for a preliminary injunction to stop DOL activities related to the new rule. Also, the plaintiffs want to court to “vacate and set aside” the rule for the long term.
While a court date has not yet been set, Carlton Fields attorneys submitted testimony from industry players in a bid to show harm the rule will cause the annuity industry.
In particular, fixed indexed annuities, said Sheryl Moore, president and CEO of Moore Market Intelligence and Wink Inc., publisher of Wink’s Sales & Market Report.
About 80,000 independent insurance agents sell fixed indexed annuities, most of which are small businesses, Moore wrote. Independent agents not affiliated with broker/dealers combined for 64.5 percent of FIA sales last year. The average commission percentage for those sales was 5.68 percent.
In a surprise move, FIAs were pulled from the 84-24 Prohibited Transaction Exemption in the final DOL rule. To sell FIAs with a commission in the future, agents will need to comply with the much tougher Best Interest Contract Exemption.
That means hefty disclosures and a contract that must be signed between the agent and client.
“I can attest that the rule change was totally unexpected by the fixed indexed annuity industry,” Moore wrote in the affidavit. “The rule change directly threatens the viability of the predominant distribution channel for fixed indexed annuities through independent agents who are not affiliated with a broker-dealer.”
Moore went on the cite the “tiny percentage” of consumer complaints about FIAs.
Moore reviewed an August 2015 NAIC report that showed states reported a total of 3,994 life insurance and annuity complaints nationwide out of a total of 68,592 total complaints reported to insurance regulators across all lines of insurance.
“Of those complaints reported for 2015, 318 were attributed to annuities, and only 52 were specifically tied to fixed indexed annuities,” Moore wrote.
“The rule change therefore clearly poses a serious problem for the several thousands of independent agents who, as noted above, are the predominant source for distribution of fixed indexed annuities to the market, and whose livelihoods and businesses depend on the sales of these products,” she added.
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 protected]
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