Opponents of the DOL fiduciary rule suffered another legal setback Tuesday when a federal appeals court affirmed a ruling that preserves the rule.
Market Synergy Group (MSG) of Topeka, Kan., argued in its lawsuit that the DOL rule would cause the company, which develops fixed-indexed annuities and other proprietary insurance products, irreparable harm if advisors selling the products are forced to use the DOL’s Best Interest Contract Exemption (BICE). The company also argued the DOL did not follow proper procedures in opening up the rule to public comment.
Under the DOL's preliminary rule, fixed-indexed annuities were placed under the Prohibited Transaction Exemption 84-24, which would have allowed advisors to sell fixed-indexed annuities and receive commissions without signing the BICE contract.
When the DOL's final rule was published in April, however, the industry was surprised when fixed-indexed annuities were put under BICE, which requires brokers and advisors to choose the product that is in consumers’ best interests and sign a legal contract stating so.
“Because the department never indicated that it might view fixed-indexed annuities as dissimilar from other fixed annuities or discussed fixed-indexed annuities in its notice, nobody submitted a comment on that issue,” the attorney for MSG, J. Michael Vaughan of Walters Bender Strohbehn & Vaughan, said in a statement to the court.
In February, U.S. District Court Judge Daniel Crabtree ruled the DOL did not violate administrative procedures in developing and publishing its fiduciary rule. It was this ruling that was upheld by the 10th Circuit Court of Appeals on Tuesday.
“We’re not able to make any comments on that right now,” a Market Synergy Group employee, who declined to provide his name before hanging up, said when asked about the appeals ruling.
“This is yet another decision concluding that the DOL acted properly in promulgating the rule. The DOL produced significant evidence of the particular risks that fixed-indexed annuities can present to investors, including these products’ significant complexity, opacity, costs and conflicts of interest,” Micah Hauptman, financial services counsel for the Consumer Federation of America, told Financial Advisor.
Federal courts in Washington, D.C., and Kansas have also upheld the fiduciary rule, which requires broker or advisor working with retirement funds, including IRAs, to act in their clients' best interest.
An industry court battle against the rule being waged by the Financial Services Institute and SIFMA was heard in July by the Fifth Circuit Court in New Orleans, but the panel of judges has yet to rule.