The Markets December 16, 2016

Equity Investment Continues Amid Market Jump

New investment to long-term mutual funds and exchange-traded products totaled $3.9 billion in November. 
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Strategic Insight’s monthly fund flow report for November 2016 shows active and passive strategies continued to experience divergent trends in net investments.

Passive funds led demand with $67.7 billion of inflows (including $49.4 billion to exchange-traded products), while actively managed funds experienced aggregate net redemptions of $63.9 billion in November.

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During the month, domestic equity funds saw the strongest demand among long-term funds, attracting net inflows of $21.1 billion. This segment has experienced net outflows of $39.5 billion in the year-to-date period through November, however. International equity funds saw net redemptions in November ($4.8 billion) and the year-to-date period ($19.2 billion).

Regarding taxable bond funds, Strategic Insight says they experienced outflows of $1.8 billion in November, while tax-free bond funds saw outflows of $10.7 billion. Strikingly, November represents the only month in 2016 that tax-free bond funds experienced net redemptions, while taxable bond funds have only seen outflows in January and November of 2016.

Money market funds experienced a significant increase in net deposits to $54.8 billion in November from $6.0 billion in October. Taxable money market funds, in particular, were responsible for most of this increase with net inflows of $53.0 billion.

Strategic Insight concludes the biggest difference in November from the rest of 2016 was that prime money market funds experienced moderate inflows ($220 million). The segment had seen significant net redemptions throughout 2016 because of pending regulation which ultimately came into effect in October.

More information about obtaining Strategic Insight research and data is available here. 

Compliance December 16, 2016

Federal Court Decision Again Denies Fiduciary Rule Injunction

The National Association for Fixed Annuities has failed again to win an injunction in a DOL fiduciary rule challenge that was previously defeated in a federal district court and is now pending on appeal.  
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The U.S. Circuit Court of Appeals for the District of Columbia has flatly denied to grant an emergency preliminary injunction prior to its hearing of an appeal by the National Association for Fixed Annuities (NAFA), which is seeking to bar the implementation of the Department of Labor (DOL) conflict of interest rule via the federal courts. 

The U.S. District Court for the District of Columbia has already rejected the claims of the anti-fiduciary rule lawsuit filed by NAFA, which had asked the court for “declaratory, injunctive, and other appropriate relief” that would have halted the implementation of the DOL rulemaking.

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The underlying suit seeks relief under the Regulatory Flexibility Act (RFA), suggesting the DOL conflict of interest rule, with its sweeping advice reforms, moves far too quickly to install overly broad restrictions to currently accepted business practices. “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.”

NAFA’s arguments did not succeed before the district court, and now it appears the challenge may do no better before the appeals court. This week the appeals court essentially rebuked NAFA’s request for an emergency injunction to halt the rulemaking from taking effect next April. The denial comprises just a few short sentences, in fact, suggesting NAFA has no claim to an injunction. 

“Upon consideration of the emergency motion for an injunction pending appeal, the opposition thereto, and the reply, it is ordered that the emergency motion for an injunction pending appeal be denied,” the appellate judges write. “The appellant has not satisfied the stringent requirements for an injunction pending appeal. See Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 20 (2008); D.C. Circuit Handbook of Practice and Internal Procedures 33 (2016).”

It remains to be seen whether the NAFA appeal will do any better during the actual trail, but the initial denial of preliminary injunction shows it will not be an easy task. A variety of arguments were leveled before the district court, but clearly they did not prevail, given that the D.C. District Court opposed NAFA’s dual requests for preliminary injunction and summary judgment. Instead, the court actually granted the DOL’s cross-motion for summary judgment, which argued naturally that all of the tenets of the rulemaking fit squarely within the DOL’s existing authority.

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