Washington INsider

Washington INsiderblog

Mark Schoeff Jr. looks at what's really happening on Capitol Hill - and the upshot for advisers.

This insurance group likely to be first to file DOL fiduciary lawsuit

The ACLI is champing at the bit to get legal action started, but it likely wants to know which other groups will be running before it starts its own race

May 10, 2016 @ 5:14 pm

By Mark Schoeff Jr.

Like horses running in the upcoming Preakness, financial industry trade associations may be off to the races on lawsuits against the recently released Labor Department investment advice rule.

While the others prance around, it looks as if the American Council of Life Insurers has entered the gate.

“The ACLI board of directors has approved exploring the details of a legal challenge to the Department of Labor's fiduciary regulation,” ACLI spokesman Jack Dolan said in a statement responding to an InvestmentNews inquiry. “ACLI will make strategic decisions based on further direction given by our member companies.”

This statement reads like the first concrete indication from a financial industry lobbying group that a lawsuit is imminent. It's not likely ACLI staff will return to the board and say, “About that suit – never mind.”

The clock is ticking. The effective date of the regulation is June 7. It's the one to watch, if the point of legal action is to place an injunction against the rule.

Lawsuits could be filed later than June 7, but then they would be trying to stop a regulation that has already survived a congressional challenge and is more securely in place.

That effective date is different from the applicability date of April 2017, when financial advisers must start acting in the best interests of their clients in 401(k), individual retirement accounts and other qualified accounts. The full implementation date is January 2018.

(More: DOL official: Agency will consider changes to fiduciary rule if problems arise)

The ACLI is champing at the bit to get legal action started, but it likely wants to know which other groups will be running before it starts its own race to beat the rule.

Insurance groups have raised concerns about the regulation's impact on variable and fixed indexed annuities. Both would fall under the so-called best interest contract exemption, a legally binding agreement that allows advisers to charge commissions as long as they act in the client's best interests.

Opponents assert that the rule is complex and costly and would make giving and receiving advice significantly more expensive. Proponents say the rule is necessary to prevent brokers from selling high-fee investment products that erode retirement savings.

Labor Secretary Thomas Perez has expressed confidence that the rule will survive lawsuits.

We should soon be on the way to knowing whether he's right.

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