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.

According to O’Brien, the members of the federation find it nearly impossible to observe the rule because as independent agents they lack the assigned supervisor that the Department of Labor’s interpretation requires, although they are regulated and supervised by state insurance regulators.

“We think it is helpful to everyone, including the Labor Department, that a federal court review whether these new rules comport with the Fifth Circuit decision handed down a few years ago, because otherwise a cloud will hang over these rules until there is such a legal challenge,” said Andy Jubinsky, an attorney with the Figari & Davenport law firm, which is representing the trade federation.

In 2016, the DOL issued the now-vacated series of rules (and exemptions) that significantly reinterpreted and broadened who could be considered an “investment advice fiduciary,” FACC said in its lawsuit.

At the time, the agency said it wanted to “regulate, in an entirely new way, hundreds of thousands of financial service providers and insurance companies in the trillion dollar markets for ERISA plans and individual retirement accounts.”

But the DOL was sued by the U.S. Chamber of Commerce. The chamber prevailed, and the rule was overturned.

The court reasoned that, in using the term “fiduciary” in the language of ERISA and the tax code, Congress intended to incorporate the well-established meaning of that common-law term, which turns on the existence of a special relationship of trust and confidence.

“Undeterred by the Fifth Circuit’s rebuke in [the Chamber of Commerce suit], the DOL has now sought to resurrect and repackage the substance of its vacated fiduciary rule through adoption of a new Prohibited Transaction Exemption, No. 2020-02,” the federation said in the lawsuit.

“The new interpretation is inconsistent with the statutory provisions of ERISA and the code and [is] arbitrary and capricious. The court should therefore vacate the new interpretation in its entirety and enjoin the DOL from implementing or enforcing it in any manner,” the federation continued.