Serious players in the life insurance industry might take the U.S. Department of Labor to court over its fiduciary rulemaking.
An attorney for the insurance industry told U.S. Department of Labor officials today during a virtual hearing that the industry will consider litigation to overturn the agency’s proposed fiduciary standard if its prohibited transaction exemption (PTE) isn’t broadened to carve out “nonfiduciaries” when they make recommendations to retirement investors.
Brad Campbell, a partner in the Washington, DC practice of Faegre Drinker, testified today that the insurance industry would consider bringing suit against the DOL if the agency goes forward with its proposed five-step exemption rule without expanding carveouts for “nonfiduciary” brokers and other salespeople.
Campbell, who said he was representing a number of insurance companies, made the comments on day one of a two-days hearing the DOL scheduled to hear live testimony on its fiduciary proposal governing the advice the financial services industry can provide to thenation’s retirement investors.
Campbell argued the new rule would unfairly force agents and brokers to take on fiduciary responsibility even when providing one-off type transactional advice to retirement investors.
In fact, the insurance industry was one of the plaintiffs that successfully sued to overturn the Obama administration's DOL fiduciary rule.
The proposal, designed to harmonize DOL policies with the Securities and Exchange Commission’s Regulation Best Interest, will still allow advisors to continue receiving compensation from third parties for the sale of investment and insurance products.
The American Council of Life Insurers—also one of the winning plaintiffs in the DOL lawsuit, testified that insurance agents and advisors are not paid to provide objective advice, but rather for one-off type transactions when they work with retirement investors and thus should not be held to a fiduciary standard.
ACLI James Szostek, Vice President and Deputy of Retirement Security, reminded DOL officials that using a “fiduciary only” approach to retirement and rollover advice led to the DOL’s 2018 loss in court.
“We are concerned that the Department’s commentary…could be understood to broadly impose fiduciary obligations in a manner similar to the Department’s 2016 fiduciary regulation,” Szostek said.