DOL defends new fiduciary rule in lawsuit brought by insurance industry group

The Department of Labor, which finalized its new fiduciary rule on April 23 and was swiftly hit with two lawsuits by insurers and annuity industry groups questioning whether the DOL exceeded its authority in crafting a controversial rule that updates the definition of an investment advice fiduciary, has now responded to the first lawsuit, which came within days of the rule’s finalization.

The Federation of Americans for Consumer Choice, a trade organization whose members are independent marketing organizations, insurance agents and agencies that market fixed annuities, filed a lawsuit May 2 in the U.S. District Court for the Eastern District of Texas, arguing that the new rule is an “assault on insurance agents selling annuities” and reflects deep-rooted misunderstandings and bias on the part of the DOL against annuities. In addition, the lawsuit alleges the DOL’s new definition of investment advice fiduciary is virtually indistinguishable from its 2016 Fiduciary Rule, which was struck down in 2018, and therefore, “seeks to grant the motion to stay the Rule’s effective date and to issue a preliminary injunction,” according to the suit. However, in court on June 14, the DOL filed a brief that argued that the new rule is compliant with existing law and is substantially different from a 2016 regulation that was vacated by the 5th Circuit Court of Appeals. The new rule focuses on the relationship between the adviser and the investor and how the adviser presents themselves, rather than “every financial professional in every transaction will be deemed a fiduciary,” according to the DOL. Furthermore, the new rule is lawful, consistent with case law and will protect investors, argued the DOL.

Related: DOL’s new fiduciary rule faces lawsuit filed by 9 insurance trade groups

The DOL has yet to respond to the second lawsuit filed on May 24 by nine insurance trade associations, including the American Council on Life Insurers and the National Association of Insurance and Financial Advisors, seeking to overturn the fiduciary rule, which suffers the same legal defects as the department’s 2016 fiduciary rule because it exceeds the department’s authority and is unconstitutional, the lawsuit alleges. The new fiduciary rule is set to go into effect Sept. 23.