Annuities Industry Fiduciary Challenge Dwelt Blow In Federal Court
November 30, 2016 by John Manganaro
A U.S. District Court judge has denied a motion for preliminary injunction filed by annuity firm Market Synergy in a case focused on whether fixed-index annuity providers will be able to use the so-called “84-24 prohibited transaction exemption [PTE],” rather than the “best-interest contract exemption [BIC],” when bringing sales and compliance procedures into alignment with the new Department of Labor (DOL) fiduciary rule.
Several attorneys had suggested to PLANADVISER that the litigation filed by Market Synergy would likely be among the first of a sizable handful of anti-fiduciary rule lawsuits to receive a ruling—given its narrow focus on fixed-index annuity sales conditions and the request for preliminary injunction made by the plaintiff. Turns out they were correct.
In short, plaintiffs in the case feel they will never be able to make the BIC workable given the commission-heavy distribution arrangements traditionally used for fixed-index annuities, and so they want the DOL to be forced to allow annuity providers to work under the 84-24 exemption, as had been initially proposed by DOL but subsequently dialed back in the final version of the rulemaking. While their case can still proceed without receiving an order for preliminary injunction, it is clear that the court believes the plaintiff is not likely to succeed on the merits of their claim. Thus the “extraordinary relief of preliminary injunction” was not granted, and the future of the case remains uncertain.
Specifically, the plaintiffs had sought a court-ordered injunction on the implementation of the portions of the DOL rulemaking that may directly impact the sale and service of fixed-annuities—especially PTE 84-24 and the BIC. Plaintiffs suggest business revenues could fall by almost 80% under the amended version of PTE 84-24 because the rule change prohibits plaintiff and others affiliated with it from receiving third-party compensation for fixed-index annuity (FIA) sales. The plaintiff also anticipates that the independent market organizations (IMOs) and insurance agents that it works with to distribute FIAs will experience significant revenue losses. And, the plaintiff forecasts that more than 20,000 independent insurance agents could exit the marketplace if the rule change takes effect.
