A Second DOL Fiduciary Rule Court Challenge Emerges

The National Association for Fixed Annuities filed a complaint in district court to “challenge and vacate the Department of Labor’s final fiduciary regulations.”

A second federal lawsuit has been filed just a few days after a coalition of financial trade groups entered their own complaint seeking to halt the DOL fiduciary rule—both asking the courts to strike down the Labor Department’s new regulations that will require most brokers and investment consultants to act as fiduciaries.

The second complaint was filed in the U.S. District Court for the District of Columbia by the National Association for Fixed Annuities (NAFA), asking the court for “declaratory, injunctive, and other appropriate relief.” Whereas the suit filed June 1 seeks relief under the Administrative Procedure Act (APA) and the First Amendment to the U.S. Constitution, this one also suggests the Department of Labor (DOL) is violating the Regulatory Flexibility Act (RFA) with its sweeping advice regulation.

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“Specifically, in promulgating the Rule and the Exemptions, the Department exceeded the authority granted to it by Congress under ERISA, the Code, and Reorganization Plan No. 4 of 1978,” the suit contends. “In addition, the Rule and the Exemptions are arbitrary and capricious, not in accordance with law, impermissibly vague, and otherwise promulgated in violation of federal law.”

The text of the complaint shows NAFA member firms are clearly worried about potential unintended consequences of the DOL rulemaking, and while they have not traditionally considered themselves as trusted fiduciary advisers for their clients, they feel the new rulemaking will treat them that way: “NAFA’s members have been adversely affected by the Department’s actions in that the Rule and Exemptions will, in many cases, threaten the very existence of their business, result in immediate and unrecoverable losses of market share, and result in unrecoverable economic losses for which no adequate relief can later be granted.”

As such, the complaint argues for injunctive relief that would effectively halt the rulemaking in its tracks until the court rendered a decision—an outcome that has already been deemed unlikely by many Employee Retirement Income Security Act (ERISA) industry experts.

NEXT: Annuities and the new fiduciary rule 

NAFA’s complaint spells out for the court the key differences between the two main types of annuities its members sell, ultimately arguing its members are entitled to injunctive relief because they are being inappropriately lumped into to the DOL’s effort to stamp out conflicts of interest between relationship-based financial advisers and their clients.

“Insurance agents who sell fixed annuities are bound by common-law requirements of agency and must pass tests of both competency and character before being granted a state license,” the complaint explains. “Insurance agents need to be licensed in each state in which they operate. Only state-licensed life insurance agents may sell fixed annuity contracts.”

Once fully qualified, NAFA explains, an agent is subject to comprehensive state regulations related to the sale of fixed annuities, and insurance companies have implemented policies to ensure compliance with such regulations.

“Accordingly, state insurance departments oversee all aspects of the transaction, from the development and approval of each fixed annuity product sold in the state, to the licensure and sales activities of the individual agents, to the operations and compliance protocols of the insurance companies,” NAFA says. “In each instance, the objective is to protect the interests of the fixed annuity purchaser.”

On NAFA’s reading, DOL’s new fiduciary rulemaking will adversely impact this already-effective system for preventing conflicts—leading to more liability, mountains of new paperwork, confused client and potentially driving an unwarranted cooldown in the annuity market.

“In 2014, for example, consumer complaints involving securities and advisers represented over 97% of combined annuity and securities complaints—but only .03% of total complaints were lodged by owners of fixed annuities,” NAFA says. “Congress has determined that fixed annuities, including fixed index annuities (FIAs), should be regulated by the states as insurance products, rather than under federal securities laws. Following an attempt by the SEC to regulate FIAs under the securities laws, Congress made its intentions clear in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.”

NEXT: Should insurance agents be fiduciaries? 

NAFA suggests to the court that the DOL “has created fiduciary obligations for relationships not appropriately regarded as fiduciary in nature and that [even] the Department does not believe Congress intended to cover as fiduciary relationships. Accordingly, under the new test, the average insurance agent is now an ERISA fiduciary if the agent sells a single fixed annuity contract to an IRA owner.”

This is one area where the DOL’s amendments to the proposed version of the rulemaking actually got tougher, from NAFA's perspective: “Prior to these amendments, the sale of all annuity products fell with the purview of the prohibited transaction exemption (PTE) under section 84-24. In its Notice of Proposed Rulemaking, the Department proposed that variable annuities be removed from PTE 84-24, leaving only fixed annuities and fixed index annuities (FIAs) subject to this exemption. In the final PTE 84-24, only fixed annuities remain for the exemption, i.e., both variable annuities and FIAs were removed from coverage under 84-24.”

In conclusion, NAFA warns that “without adequate notice as required under the APA, in the final rule the DOL moved FIAs out of PTE 84-24 and into the best-interest contract exemption (BICE) ... All fixed annuities—including FIAs—have heretofore been treated as insurance products, exempt from federal securities laws and regulated under state insurance laws. Yet the Department lumped FIAs in with securities products like variable annuities when it promulgated the rule and the exemptions.  Because FIAs are an insurance product, the FIA sellers represented by NAFA—including carriers, IMOs, and agents—are ill-equipped to suddenly be subjected to the onerous compliance obligations required by the BICE, which more closely resemble the types of requirements imposed on the securities industry.”

The full text of the complaint is available here

Retirement Industry People Moves

NYLIM appoints Chief Operating Officer; Janney hires two Institutional Equity sales professionals; Securian hires Retirement Plan sales leaders, and more.

NYLIM Appoints Chief Operating Officer 

Kirk Lehneis has been appointed chief operating officer of New York Life Investment Management (NYLIM), the investment management arm of New York Life Insurance Company.

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In this newly created role, he reports to Yie-Hsin Hung, CEO of NYLIM, and is a member of NYLIM’s Management Committee. As Chief Operating Officer, Lehneis will be responsible for strategic planning and implementation, with a focus on growing the firm’s alternative investment solutions, exchange-traded funds (ETFs) and international footprint.  He will also be responsible for mergers and acquisitions, training and strategic technology initiatives in support of the business.

Lehneis joined New York Life in 2005 and progressed through a series of senior executive product development roles with MainStay Investments. Prior to his new role as COO, he had direct responsibility for and led product development for NYLIM, the MainStay Board relationship team and project management office for the retail line of NYLIM. 

Prior to joining New York Life Investments, Lehneis progressed through senior roles with GivingCapital, Inc., including director of Client Service and Product Development for donor-advised fund product distribution to the financial services market. He began his career with a focus in sales and marketing with Unisys Corp. and Beenz.com, Inc. He holds a Bachelor of Arts degree from the University of Pennsylvania.

NEXT: Janney Hires Two Institutional Equity Sales Professionals

Janney Montgomery Scott announced the hiring of two senior sales professionals to join its New York Institutional Equity Sales team.

Andy Ballou and Glenn Skolnick have joined the firm as managing directors and will report to Andrew Maddaloni, director of Research and head of Equity Sales.

“Andy and Glenn will work together with Ed Armstrong, Michael Nolan, and Blair Smith, in providing full, dedicated and cohesive coverage to our New York institutional clients,” says Maddaloni.

Ballou joins Janney from RBC Capital Markets, where he spent the past 14 years in Institutional Equity Sales covering long-only and hedge fund accounts in New York and Connecticut. Prior to RBC, he spent time in Equity Research at CIBC and Credit Suisse, having started his career at Merrill Lynch. Ballou has an undergraduate degree from Hampden–Sydney College.

Skolnick, with more than 20 years of industry experience, comes to Janney from BMO Capital Markets, where he spent the previous five years as a senior Institutional Sales professional covering New York hedge fund and long-only accounts. Prior to BMO, he was a senior salesperson at Morgan Keegan, WR Hambrecht and Wachovia. Skolnick began his career in Equity Research at Bear Stearns and earned an undergraduate degree from Cornell University.

NEXT: Securian Hires Retirement Plan Sales Leaders

Bob Janisko and Doug Beardslee recently joined Securian Financial Group’s Retirement Plans division as regional sales vice presidents.

Janisko, based in Hagerstown, Maryland, is responsible for bringing Securian’s retirement plan solutions to small and mid-size employers throughout Maryland, Virginia and Washington, D.C. He has 28 years of experience, previously serving as a regional sales vice president with Transamerica Retirement Solutions. Janisko earned a master’s degree from Boston University and a bachelor’s degree from the United States Naval Academy. He also served 22 years in the United States Marine Corps.

Beardslee is based in Overland Park, Kansas, and is working with advisers to bring Securian’s retirement plan solutions to small and mid-size employers throughout Iowa, Kansas, Missouri, Nebraska and southern Illinois. Prior to joining Securian, Beardslee served as a regional sales director with AUL Retirement Services, a OneAmerica Company. He has 25 years of experience and earned a bachelor’s degree from Baker University in Kansas.

NEXT: VALIC Names Healthcare and Government Markets Business Leader

VALIC, a division of AIG and a retirement plan provider for health care institutions, local governments, K-12 and higher education markets and other not-for-profit organizations, has named Wendy Daniels, senior vice president, Healthcare and Government Markets business leader.

Daniels will partner with various leaders across the organization to drive strategic growth for the Healthcare and Government markets and will report to Eric S. Levy, Executive Vice President.

Daniels will support the establishment, building and maintenance of relationships with key plan sponsors and decision makers to help drive growth. She will also oversee client-focused, market-centric business strategies to further VALIC’s leadership in the Healthcare and Government spaces. She will participate directly in new business development and retention activities, as well as identify new market opportunities nationwide.

Daniels will apply her expertise to creating and implementing innovative solutions while overseeing VALIC’s thought leadership in these important core markets. She will work alongside Don Harris, senior vice president, Higher Education, and John Kevin, vice president, K-12, as part of VALIC’s Market Management senior leadership team.

Before joining VALIC, Daniels most recently served as senior vice president, Retirement Marketing Strategy for Transamerica where she developed campaigns and supported sales and retention in all plan markets.

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