Appeals court upholds DOL fiduciary rule in case involving fixed indexed annuities

Market Synergy Group argued the regulation treated the annuity products arbitrarily and violated rulemaking procedures

Mar 13, 2018 @ 5:16 pm

By Mark Schoeff Jr.

A federal appeals court upheld the Labor Department's fiduciary rule in a decision issued on Tuesday.

The 10th Circuit Court of Appeals ruled in favor of a Kansas district court that granted summary judgment to the DOL in a lawsuit filed by Market Synergy Group Inc., a Topeka insurance agency that develops fixed indexed annuities and other proprietary insurance products.

The firm argued that the DOL rule treated fixed indexed annuities arbitrarily by forcing the products under the best-interest contract exemption, a provision of the regulation that allows brokers to earn variable compensation as long as they sign a legally binding contract to act in the best interests of their clients.

Fixed indexed annuities currently operate under the same exemption of federal retirement law as fixed annuities. But the DOL put them under the so-called BICE due to their complexity and the potential conflicts of interest associated with their sales.

Market Synergy also claimed that DOL violated rulemaking procedures and didn't do a proper economic impact analysis in promulgating the fiduciary rule.

The 10th Circuit judges held that DOL followed appropriate administrative procedure, was fair in its treatment of fixed indexed annuities and that it conducted an appropriate economic analysis.

"Once again, a court has decided that the DOL was on solid footing when it promulgated this rule, that it followed the proper process and justified its decision-making," said Micah Hauptman, financial services counsel at the Consumer Federation of America.

A spokesman for Market Synergy did not immediately respond to a request for comment.

The DOL rule is the subject of many industry lawsuits. Tuesday's ruling was the first by an appeals court. A lawsuit brought by several trade associations, including the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association and the Financial Services Institute, is now in the Fifth Circuit Court of Appeals.

"The Fifth Circuit is the whole ballgame," said Kevin Walsh, an attorney at Groom Law Group. "That's where the best arguments against the rule are being made."

The court has not yet handed down a decision in the case, which involves not only claims about administrative procedure but also raises constitutional questions about the DOL rule.

The DOL has delayed full implementation of the fiduciary rule while it reassesses its impact on financial firms and investors under a directive from President Donald J. Trump that could lead to major changes.

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