The motion to delay the Department of Labor’s fiduciary rule has an uphill fight, judging by the harsh line of questioning leveled at the attorney asking for the injunction.
Philip D. Bartz opened the industry's legal assault on the federal fiduciary rule Thursday with 90 minutes of tough questioning from U.S. District Court for District of Columbia Judge Randolph J. Moss.
Bartz represents the National Association for Fixed Annuities in the first of three lawsuits against the DOL. NAFA seeks a preliminary injunction.
Moss adjourned the hearing without a decision after more than three hours of testimony.
At one point, Bartz and Moss had an extended back and forth about whether the DOL has the authority to extend ERISA law to IRAs.
"I think you understand our position on that," Bartz said in summation. "Even though you may not agree with it."
"I'm just trying to make sure I understand it," Moss replied. "I have not formed any conclusions at all at this point."
Still, Moss grilled Bartz repeatedly on a number of key points.
The judge doubted Bartz's claim that agents will have to violate state laws in order to serve the "best interest" of their clients.
When Bartz stressed the differences between insurance sold by agents and securities sold by advisors, Moss disagreed.
"The world has changed a lot," he noted.
Lawsuit alleges DOL overreach
The lawsuit alleges the DOL rule is invalid on grounds that the agency exceeded its authority to regulate individual retirement accounts and that it improperly categorizes insurance agents as fiduciaries.
NAFA also argues that the DOL’s decision to include fixed indexed annuities (FIAs) under the Best Interest Contract Exemption (BICE) in the final rule – rather than under the less onerous PTE 84-24 as originally proposed – with no opportunity for meaningful comment and without adequate justification was arbitrary and capricious.
NAFA members were "blindsided" by the final treatment of FIAs, the lawsuit says.
"The impact will be highly detrimental to the FIA industry and its clientele. Insurance carriers will need to restructure their distribution models, because they will not be able to guarantee in a BIC that independent agents selling insurance products from different carriers have acted in the best interest of purchasers," the lawsuit reads.
As fixed insurance products and not securities, FIAs and those who create, distribute and sell them stand to be uniquely harmed by this rule.
A Market Synergy lawsuit in U.S. District Court for the District of Kansas is slated to be heard Sept. 21. Three lawsuits filed by several plaintiffs in U.S. District Court Northern District of Texas were consolidated by the court and will be heard Nov. 17.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com.
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