Financial basis

Fiduciary Rule Challenge ‘Friended’ by ACLI

A lawsuit challenging the Department of Labor’s subsequent guidance/enforcement of the so-called fiduciary rule has the support of the American Council of Life Insurers (ACLI).

As noted in the filing, the ACLI was a lead plaintiff in the Fifth Circuit’s decision that struck down the 2016 Trust Rule – a rule that, according to the brief, “copiously conferred fiduciary status on the basis of sales recommendations”. The amicus memoir[i] notes that “DOL, which ‘continues to believe’ that the Fifth Circuit’s decision ‘was wrong’, refuses to comply with several key aspects of the ruling.” The ACLI defends its interests[ii] by filing the so-called amicus brief claiming that he “has a substantial interest in ensuring that consumer access to annuities and other retirement products through traditional insurance sales channels is not disrupted by the DOL’s efforts to undermine the decision of the Chamber of Commerce”.

The original lawsuit was filed by the Federation of Americans for Consumer Choice Inc. – as well as several advisers and consulting firms that sell annuities as part of their practice(s) – in March 2022, claiming that “ agent applicants often make rollover recommendations for the purchase of annuities to IRA owners and participants in employer-sponsored 401k and similar benefit plans, for which they receive commissions or other compensation annuity issuers. Agent Applicants will therefore be directly and adversely affected by the new interpretation of the DOL suddenly categorizing their status as investment advisory fiduciaries under ERISA or the Code, as the case may be.

‘Apples and Oranges’

The deposit[iii] asserts here that, “if allowed, the DOL’s new ‘Final Interpretation’ of its investment advisory fiduciary regulations would achieve the same functional result sought by the 2016 fiduciary rule that the Fifth Circuit rejected and invalidated” – that “the new interpretation of the DOL once again “mixes apples and oranges” by “[t]turn sales pitches into recommendations from a trusted advisor.

The hindsight here focuses on a key part of the so-called five-part test[iv]— the ongoing relationship between adviser and adviser. “Under the final interpretation of the DOL, investment sales professionals are deemed to operate as investment advisory fiduciaries even in the absence of any pre-existing relationship with an ERISA plan or participant, so long as it exists” an anticipated future continuing relationship” – something the filing states “…directly violates the Fifth Circuit Chamber of Commerce ruling in at least two fundamental ways.”

First, the filing claims that “DOL uses ‘the beginning of a continuing relationship’ to make a financial professional a fiduciary, even though the Fifth Circuit held that the ‘relationship must exist before and outside of’ the transaction in question”. Second, he argues that “because most finance professionals seek to develop an ongoing relationship with a new customer, the DOL includes ‘ordinary buyer-seller interactions’ as fiduciary in nature, even though the Fifth Circuit has believed that ERISA investment advisory fiduciary status requires a relationship . . . beyond ordinary buyer-seller interactions.’”

The filing goes on to assert that “the DOL’s refusal to follow Fifth Circuit precedent is not excused by the agency’s desire to enforce ERISA fiduciary standards on” reappointment boards. [ERISA] Plan Assets to IRAs,” explaining that “the DOL unsuccessfully advanced this same rationale before the Chamber of Commerce’s Fifth Circuit, where it claimed it had to” fulfill [a] perceived gap in the regulation of IRAs. The brief concludes that “the DOL cannot rewrite a law simply because it is unhappy with what Congress has written.” Ultimately, they comment that “the law does not permit the DOL to merge a potential future advisory relationship with an IRA holder with a single ERISA plan renewal recommendation as the basis for finding a fiduciary relationship with the two. »

Bad Request ?

Returning to the Fifth Circuit’s decision, the brief comments “In reversing the 2016 fiduciary rule, the Fifth Circuit ruled that the DOL erred in applying ERISA’s fiduciary obligations to ‘a single rollover of the IRAs or annuity transactions where it is generally inconceivable that financial sellers or insurance agents will have an intimate, trusting relationship with potential purchasers” – that in fact the court said there must be “ an intimate advisor-client relationship beyond ordinary buyer-seller interactions” that “must exist before and outside of” the transaction in question. »

The brief goes on to note that, “having failed in its attempt to ‘replace’ the Deseret Letter with the 2016 Trust Rule, the DOL issued what the plaintiffs call the ‘Revised Exemption’ in 2020, which sought to obtain the same result by retracting the Deseret letter and publishing a contrary “final interpretation” in the Federal Register. Further, they note that “DOL now asserts that “the guidance for transferring assets from a Title I plan into an IRA where the investment advice provider has not previously provided advice “is subject to the fiduciary requirements of ERISA if it” marks[s] beginning of an ongoing relationship” or “an intended future ongoing relationship”.

“And while such a continuing, pending or anticipated relationship would only involve the IRA and not the ERISA plan from which the rollover was distributed, DOL asserts that a fiduciary advisory relationship would also apply at the level of the plan. ERISA. like the IRA. The memorandum later asserts that “DOL now presumes that a financial professional is an ERISA trustee in a first-time transaction, unless there are certain disclosures to the contrary…”.

Ultimately, the amicus brief asserts that:

The DOL’s new interpretation is inconsistent with the decision of the Fifth Circuit Chamber of Commerce.

The new interpretation of the DOL erroneously seeks to combine separate IRA and ERISA plan relationships to confer ERISA fiduciary status on rollover recommendations – that ERISA plans and IRAs are “legally distinct and separately governed plans” and that “without improperly combining separate IRA and ERISA plan relationships, ERISA fiduciary status cannot apply to a rollover recommendation where there is no pre-existing relationship.

Stay tuned.


[i] Amicus Curiae literally translates from Latin as “friend of the court”. The plural is “amici curiae”. It generally refers to a person or group who is not a party to an action, but who has a strong interest in the case and who, by filing the brief, tries to inform/influence the decision of the court. These briefs are called “amicus briefs”.

[ii] The brief notes that the American Council of Life Insurers (“ACLI”) is the nation’s largest life insurance trade association, with nearly 300 member companies and representing approximately 94% of industry assets in the United States. United. ACLI member companies provide annuities and other products, including guaranteed retirement income products, that enable US consumers to achieve, preserve and protect their financial well-being and security.

[iii] Groom Law Group, Chartered is counsel for the ACLI in the filing of the amicus brief

[iv] Not that NAPA-Net readers aren’t familiar with the five parts, but just in case, according to this test, an investment advisory fiduciary is someone who (1) gives advice or makes recommendations as to the opportunity to invest, buy, or sell securities or other property; (2) on a regular basis; (3) by mutual agreement between that person and the plan; and the board (4) serves as the primary basis for investment decisions regarding plan assets; and (5) is individualized to the particular needs of the plan.