New DOL Fiduciary Rule Defies Court Ruling, Insurance Groups Argue

In their May 24 court filing, the insurance groups explain, starting on page 12, that most annuities are ”sold by independent agents and brokers” who “must educate themselves about the many available products in the market and consumers’ financial situations. This takes time.”

To help compensate “for the time and effort required to provide useful information and complete an annuity transaction, the insurance company — not the retail customer — typically pays the agent or broker-dealer a sales commission,” the filing states.

The principal alternative to the commission-based compensation structure is a fee-for-advice model, the filing goes on to state. However, the groups maintain that a “fee for-advice model is relatively more expensive over time than a commission-based model,” and therefore would effectively place the information needed for rational decision-making for many middle- and lower-income consumers out of reach.

DOL Rebuttal

Labor, meanwhile, told the court on June 28 that the insurance groups — national associations that represent life insurance companies, insurance agents, brokers, and distributors, and Texas-based affiliates of one of those associations — “do not dispute that insurance agents frequently provide investment advice, and they enthusiastically trumpet how important their advice and products are for retirement investors.”

Yet, the groups maintain that the 2018 ruling that torpedoed Labor’s 2016 rule “means that insurance professionals are seldom, if ever, subject to the ERISA fiduciary standard.”

The groups want the department “to be bound to provisions in its original 1975 regulation that have no basis in ERISA’s text,” Labor said.

“Their arguments cannot be reconciled with ERISA’s text, the Department’s long history of regulating insurance professionals who provide advice to ERISA plans, or the reasonable expectations of retirement investors in the current insurance marketplace,” Labor wrote.

The department, Labor continued, ”has reasonably construed ERISA’s text and crafted an objective facts-and-circumstances test that treats insurance professionals as ERISA fiduciaries only under conditions where it is objectively clear that the professionals are holding themselves out as trusted advisors worthy of retirement investors’ trust and confidence,” Labor’s filing states.

Labor’s new fiduciary rule “applies a uniform standard to all compensated investment advice regarding ERISA plan assets, without favoring or disfavoring any particular investment product or type of advice provider,” Labor wrote.

The court should deny the insurance groups’ motion for a preliminary injunction and stay of the rule’s effective date, Labor said.

The plaintiffs are the American Council of Life Insurers; the Insured Retirement Institute; the National Association for Fixed Annuities; Finseca; the National Association of Insurance and Financial Advisors; and the NAIFA chapters of Texas, Dallas, Fort Worth and Pineywoods of East Texas (known as NAIFA-POET).