As the dates for oral arguments approach, another set of plaintiffs have made their case for a quick summary judgement decision in their favor.
The latest filing, on behalf of the American Council of Life Insurers and National Association of Insurance and Financial Advisors, challenges “the attempt by the Department of Labor to impose new rules on the way annuities are sold to retirement savers, rules that exceed the Department’s statutory mandate; violate the First Amendment rights of consumers and sellers of such products to receive and provide truthful information about such products; and will do far more harm than good to Americans trying to plan for happy and prosperous retirement years.”
The suit also claims that the fiduciary regulation violates the First Amendment in that it “bans, regulates, and burdens speech — that is, ‘recommendations’ regarding certain retirement products — yet fails both strict and intermediate scrutiny.”
The filing says that the “misguided and unprecedented intervention in the retirement savings marketplace” will “unnecessarily restrict consumers’ access to annuity products and important information about those products, … unnecessarily drive up the costs of guaranteed lifetime income products, distort the marketplace for retirement products generally, interfere with consumers’ access to truthful information about those products, and worsen, not help resolve, the profound challenges facing retirement investors.”
The filing notes that the alternative to commission-based compensation is a fee-for-advice model, in which consumers pay an adviser to manage their investments over time. “This model may work well for consumers who can afford to pay for ongoing advice — typically measured by a percentage of assets under management,” notes the filing, going on to note that it is, however, “more expensive and makes little sense for consumers making a one-time purchase of a ‘buy-and-hold’ product like an annuity.”
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The filing notes that the fiduciary regulation breaks sharply with past Department regulations and federal law more generally by:
- discarding a longstanding distinction between fiduciary investment advisers and non-fiduciary salespersons;
- replacing enforcement-by-expert-agency with a new regime of enforcement-by-private-lawsuit; and
- subjecting (for the first time) different kinds of annuities to entirely different legal regimes.
As noted in the NAFA filing for summary judgement, this one notes that the studies relied on by the Department focused almost exclusively on mutual funds, not insurance products such as variable and fixed indexed annuities. “That difference is material given, among other things, that insurance products (unlike mutual funds) are subject to unique state-law suitability standards that protect annuity purchasers,” according to the filing, which goes on to note that while the Labor Department claimed it could extrapolate the results from mutual fund studies to other investments, it “offered no reasoned explanation for that claim.”
Finally, the filing notes that the only comment that meaningfully addressed the BICE’s feasibility for fixed indexed annuities was prompted not by the 2015 NPRM, “but by a private meeting the Department held the day before the close of the final comment period." Because the Department did not provide sufficient notice of those changes, the Department not only violated the APA, but "the lack of notice severely prejudiced Plaintiffs, who were unable to comment on the unexpected changes, and who would have submitted comments explaining why selling group annuities and fixed indexed annuities under the BICE is infeasible.”
Since in their estimation the fiduciary regulation is “contrary to law, arbitrary and capricious, and unconstitutional as applied,” the filing asks the court to “vacate the Rule in its entirety.”
District Judge Barbara M.G. Lynn agreed last month to let three lawsuits, including this one, filed in the Northern District of Texas to be consolidated. While the parties had asked for a mid- to late-October date for oral arguments, that has now been set for November 17.