The Federation of Americans for Consumer Choice, a trade group representing independent insurance agents and agencies, sued the Department of Labor today on the grounds that the agency’s interpretation of who is required to act as a fiduciary is overly broad.
The lawsuit, which was joined by a number of other independent insurance agents and agencies, was filed in federal court in the Fifth Circuit in Dallas—the same court that struck down the Labor Department’s previous fiduciary rule three years ago.
The DOL’s rule, which can be enforced by the agency beginning this week, considerably broadens the agency’s interpretation of who is considered a fiduciary, which the lawsuit contends is contrary to an earlier decision by the U.S. Fifth Circuit Court of Appeals vacating the 2016 rule.
"The new rule is the latest iteration of a decade-old effort by the government to turn more financial professionals, including insurance agents, into fiduciaries, subjecting them to more onerous regulatory requirements,” said Kim O’Brien, CEO of the Federation of Americans for Consumer Choice.
The lawsuit asserts the Labor Department’s latest rule “carries forward the core problem the Fifth Circuit identified in vacating the fiduciary rule the first time,” adding that “pouring the same old wine into a new bottle does not change the result.”
Specifically, the Fifth Circuit court held that the DOL’s fiduciary rule significantly expanded and conflicted with the statutory definition of “fiduciary” in the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. As a result, the department therefore lacked the authority to promulgate the fiduciary rule, the court said.
FACC, a relatively new trade group, also contends the Labor Department rule will harm average consumers, even though it is promoted as increasing consumer protection.
O’Brien said that the DOL interpretation “places an unfair regulatory burden upon independent insurance agents who serve Middle America, thereby limiting access by lower and middle-income Americans to important guaranteed retirement products as well as retirement advice more generally.”
The regulation “could force agents in small towns across America to close up shop if it is not overturned, leaving many consumers without access to insurance and retirement products,” O’Brien told Financial Advisor.
Eric Couch, president of ProVision Brokerage in Flower Mound, Texas, north of the Dallas-Fort Worth area, is one of several individual agents and agencies in the state that joined the lawsuit as plaintiffs. “We obviously work hard to provide quality products and services to our clients, but we worry that yet another layer of regulation could impair our ability to stay independent and offer the widest range of products that truly benefit our clientele,” Couch said.