Whether trade groups will join the lawsuit or file supporting court briefs remains to be seen, but what is clear is that insurance and annuities companies executives are rattled by the DOL’s new rule and it’s expansion of the SEC's investor advice rule, Regulation Best Interest. Executives are also concerned that regulators may use enforcement to expand both DOL and SEC regulations.
“When 100 firms end up being noncompliant, there’s a lack of clarity. You have to go back to the rules and make sure they are clear,” Lincoln Investment President and CEO Ed Forst said of the current regulatory climate at a recent FSI conference in Dallas.
The FACC’s attorney believes the challenge to the DOL rule is a strong one. “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.
The FACC’s 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.”
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.
Kim O’Brien, CEO of the FACC, 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.
O’Brien said the independent agents and firms her trade group represents find it nearly impossible to comply with the new DOL rule because as independent agents they lack the assigned supervisor that the rule requires, although they maintain their transactions are strictly regulated and supervised by state insurance regulators.
The DOL’s latest 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,” she said.
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 and a plaintiff in the case, said the lawsuit is necessary to clarify his regulatory framework. “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.