DOL Fiduciary Rule Withstands Second Court Challenge
On Monday, a Kansas federal judge denied a Topeka-based insurance agency’s request for a preliminary injunction delay the April 2017 implementation of the Department of Labor’s fiduciary rule.
U.S. District Judge Daniel Crabtree’s decision against Market Synergy Group is the second victory this month for the DOL and its rule that redefines who is considered an investment advice fiduciary. Market Synergy Group works with insurance companies to develop fixed indexed annuities and other insurance products for distribution.
In the lawsuit, Market Synergy Group challenged the DOL’s rulemaking and maintained that the DOL failed to follow the appropriate procedures and violated the Administrative Procedure Act and Regulatory Flexibility Act by issuing a final rule that placed fixed indexed annuities under the best interest contract exemption.
The DOL says that BIC exemptions allow certain broker-dealers, insurance agents and others that act as investment advice fiduciaries to continue to receive a variety of common forms of compensation that otherwise would be prohibited as conflicts of interest.
Market Synergy Group asserted that the rule will have “grave consequences” for its business, which is heavily dependent on its ability to receive compensation generated from fixed indexed annuities sales. The group estimates that its revenue will decline by almost 80 percent and that more than 20,000 independent insurance agents will exit the marketplace if the rule change takes effect.
The DOL said that the rule change is necessary to protect consumers, noting that fixed indexed annuities are “complex transactions that involve significant conflicts of interest at the point of sale.”
In his 63-page opinion, Judge Crabtree said that “an injunction will lead to confusion about the law and likely produce unwarranted delay. This is not in the public’s interest. Any injunction thus will produce a public harm that outweighs any harm that plaintiff may sustain from the rule change.
He added, “The DOL has determined that the rule changes will benefit retirement investors throughout the United States by requiring investment advisers to act in the best interest of those investors. Congress authorized the DOL to evaluate these competing interests and it has concluded that significant public interests favor the proposed regulatory changes.”
Earlier this month, Judge Randolph Moss of the U.S. District Court for the District of Columbia denied the National Association for Fixed Annuities request for a preliminary injunction. NAFA is appealing the decision.
Market Synergy is also expected to appeal the decision.
