NAFA: Insurers to ‘have their butts sued off’ under DOL fiduciary rule

“NAFA did an excellent job of highlighting the extent to which DOL exceeded its statutory authority in issuing this regulation,” said Kent Mason, a partner at Davis & Harman, a Washington law firm that represents financial companies. “NAFA’s discussion showed that DOL’s definition of a fiduciary is overbroad, and DOL had no authority to impose state law class actions that were not part of Congress’ carefully designed set of remedies for IRAs.”

But Sweeney believes the likely outcome is a quick decision by Moss – within the next 30 days — denying NAFA’s request for an injunction.

“Although the FIA providers have the strongest irreparable harm argument of all providers impacted by the fiduciary rule, Judge Moss’ questioning in the grueling three-hour-long hearing suggested that he is likely to deny the injunction and uphold the fiduciary rule on the grounds that NAFA was unable to make the required irreparable harm showing,” she said.

Next up in the fiduciary rule legal battle is the preliminary injunction requested by insurer Market Synergy on Sept. 21 before Judge Daniel D. Crabtree in the District of Kansas, which Sweeney says is “historically a more hostile venue” for the DOL.

“If Judge Moss denies the injunction and Judge Crabtree grants an injunction, expect the battle to move quickly to the circuit courts, and a likely march to the Supreme Court.”

The DOL disagreed with the assertion that the rule creates a new private right to sue, “arguing that the applicable cause of action is breach of contract, which already exists under state law,” said Erin Sweeney, counsel at Miller & Chevalier, who has also served as senior benefit law specialist at DOL.

Under the Employee Retirement Income Security Act, a fiduciary investment advisor is defined as one who “renders investment advice for a fee or other compensation.”

“NAFA contended the DOL exceeded its authority because neither the statute nor its legislative history indicates that Congress meant to conflate ‘advice’ with ‘sales,’” Sweeney said.

NAFA argued in its brief that “as has been recognized forever until now, the investor who buys the annuity is paying for a product, not investment advice, and the salesperson is not a fiduciary,” Sweeney added.   

In addressing the lawsuits currently pending in Texas, Kansas and Washington against DOL’s fiduciary rule, Labor Secretary Thomas Perez said on a Thursday call with reporters to announce a final rule on state-run retirement plans that “the status quo has worked well” for these groups that are suing. “Read the lawsuits; the claim that’s most remarkable is that they have a First Amendment right to give conflicted advice to people. I’d love to see that rule applied to doctors and lawyers.”

The Financial Planning Coalition — comprising the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors — filed an amicus brief Thursday in the U.S. District Court for the Northern District of Texas, in support of DOL’s fiduciary rule and opposing efforts to stop the rule from taking effect.

Oral arguments from both the DOL and lawyers representing plaintiffs in the three lawsuits filed in Texas against DOL’s rule — which have been consolidated — will take place Nov. 17.

See also:

3 exciting unintended consequences of the DOL rule

How the final DOL fiduciary rule will impact advisors