Labor Secretary Alexander Acosta failed to take any kind of tough line on the controversial fiduciary rule in the DOL's first substantive comments since he was confirmed April 27.
Filed Monday in the Fifth Circuit Court of Appeals in New Orleans, the Department of Labor’s 135-page response almost uniformly defended the entire rulemaking process under former Secretary Thomas Perez.
The filing was required as part of an appeal by industry plaintiffs, who lost several rulings at the federal court level. The Fifth Circuit will hear oral arguments on the appeal July 31.
Acosta’s DOL defended the Best Interest Contract Exemption nearly in its entirety. Plaintiffs are most desirous of seeing the BICE disappear, or at least be amended. It requires significant disclosures to clients, as well as a signed contract, and creates a class-action right to sue.
Sellers will need to comply with the BICE to continue selling variable and fixed indexed annuities on a commission basis.
“DOL reasonably determined, on the basis of the extensive record before it, that conflicted transactions involving certain annuities should be required to satisfy the BIC Exemption,” the DOL response read. “DOL concluded that the exemption’s conditions are necessary to protect retirement investors from the harms posed by conflicted transactions involving these complicated products.”
The DOL brief deviated in one respect from the Obama administration: The BIC exemption’s condition restricting class action waivers should be vacated as it applies to arbitration clauses, the brief said.
“The government no longer defends that condition in light of the Acting Solicitor General’s construction of the Federal Arbitration Act in a case pending before the Supreme Court, but that condition is severable from the remainder of the fiduciary rule, as the rule itself makes clear,” the brief said.
That change matters little to the insurance side, said one industry veteran, adding “we can’t arbitrate anyway.”
Acosta is a Harvard Law School graduate, former clerk to Supreme Court Justice Samuel Alito, a former U.S. Attorney and a former law school dean.
Perhaps it isn’t surprising that the DOL took such a legalistic approach to the brief given Acosta's background. The department opened up two new comment periods last week and industry hopes remain high that Acosta will decide to weaken the BICE or delay the Jan. 1, 2018, effective date.
The first phase of the fiduciary rule went into effect June 9. It requires advisors and agents to act as fiduciaries, make no misleading statements and accept only “reasonable” compensation.
There was some speculation, with the Donald J. Trump administration’s anti-regulation push, that the DOL would simply decline to defend the fiduciary rule.
With Monday’s brief, Acosta squashed that notion. The brief maintained the DOL stance that variable and fixed indexed annuities are too complicated to be sold without investor protections.
Likewise, government attorneys rejected the idea that annuities are already well regulated, and that the DOL rule will restrict access to key retirement products.
"DOL reasonably concluded that any contraction in the market share of such products as a result of the fiduciary rule would reflect not harm to consumers but a reduction in mismatched recommendations of products to investors,” the brief stated.
Plaintiffs filed suit against the DOL in U.S. District Court for the Northern District of Texas and include the American Council of Life Insurers, the U.S. Chamber of Commerce, National Association of Insurance and Financial Advisors, the Insured Retirement Institute, and many others.
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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