Annuity Providers Fight New Investment Rule

     DALLAS (CN) – The Labor Department’s rule change that imposes fiduciary duties on financial advisors is arbitrary and unconstitutionally infringes on “protected commercial speech,” according to several insurance groups that sell annuities.
     Lead plaintiff American Council of Life Insurers sued the government in Federal Court on Wednesday, arguing the April rule change is “arbitrary and capricious” and is against the law.
     The annuity firms say the rule hurts retirees who “more than ever need access to guaranteed lifetime income products,” such as annuities. The lawsuit cites a White House task force that said in 2010 there is a “compelling need” to promote annuities and other forms of lifetime guaranteed income.
     “The rule promulgated by the department, however, will injure American consumers by restricting, limiting, or denying them access to information about guaranteed lifetime income products,” the 105-page complaint states. “By imposing a vague and burdensome fiduciary standard on non-fiduciary sales relationships, the rule will upend the retirement savings marketplace and seriously threaten consumers’ access to guaranteed lifetime income products.”
     The plaintiffs argue Congress only gave the agency authority to regulate “fiduciary” advice. They say that selling life insurance products has “never before been deemed fiduciary and do not bear the hallmarks of fiduciary duties.”
     The government was hit with a similar lawsuit last week by several trade and business groups. That complaint claims the rule change will hurt retirement savers and “creates sweeping changes” that make saving harder.
     “It specifically hinders many of our member firms’ ability to continue providing the level of holistic financial advice and suitable investment options their clients are accustomed to,” the June 1 complaint stated. “The rule will shackle Main Street financial advisors with extensive new requirements and constant liability, forcing them to limit the options and guidance they provide to retirement savers.”
     Labor Department officials declined to comment on the insurers’ lawsuit Thursday afternoon, but responded to last week’s lawsuit by saying the rule change was “one of the most deliberate, open regulatory processes in recent memory.”
     “Conflicted advice is eroding the savings of working Americans to the tune of $17 billion each year,” U.S. Secretary of Labor Thomas E. Perez said on June 2. “The conflict of interest rule aims to address that problem by requiring retirement advisors to look out for the best interests of their clients. Many financial services professionals, from small town advisers to some of the nation’s largest firms, engaged constructively with the department throughout the rulemaking process and, after publication of the final rule, noted that they do put the interests of their clients first and are well positioned to comply … But there is a small, vocal minority who support the status quo that enables them to put their own interests first. This lawsuit seeks to vindicate their desire to put their own interests ahead of their clients’ best interests.”
     Perez said the rule change is “built upon solid statutory and legal foundations” and that the agency will “vigorously” defend it.
     Co-plaintiffs in the June 8 lawsuit include the National Association of Insurance and Financial Advisors and its offices Amarillo, Dallas, Fort Worth and Wichita Falls.
     The companies seek a declaration against the rule for violations of the Administrative Procedure Act and the First Amendment. They are represented by David W. Ogden with Wilmer Cutler in Washington, D.C.

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