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DOL Fiduciary News: March 19, 2018

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DOL fiduciary rule likely to live on despite appeals court loss

InvestmentNews; Mar 16, 2018 @ 2:48 pm

Despite suffering a major blow when it was struck down Thursday by a federal appeals court, the Labor Department's fiduciary rule could still live on. Uncertainty, though, will continue to surround the measure as it morphs its way into the future.

Its fate depends on whether the agency will continue to defend the rule in court, even as it has delayed full implementation of the regulation while it conducts a reassessment ordered by President Donald J. Trump that could lead to major changes.

"While this is an important victory in the courts, we won't know the outcome for several more months," said Brad Campbell, a partner at Drinker Biddle & Reath, and the former assistant secretary of Labor for employee benefits and former head of the Employee Benefits Security Administration under President George W. Bush. "The DOL rule will still be in effect until we know what's going to happen with appeals.

'We Shall Never Surrender!' [IRI marketing conference]

Fri, Mar 16, 2018

Winston Churchill’s famous speech about defending Britain on the beaches, landing grounds, fields, streets, and hills—“We shall never surrender,” the scowling cigar smoker snarled—was invoked at the Insured Retirement Institute’s marketing conference in Orlando this week. His words couldn’t have been more fitting.

Like Britain in 1940, the IRI (and the annuity issuers and sellers for whom it has lobbied since 2008) needs a rallying cry. Eight years of hostility from the Obama administration, a nine-year bull market in risky assets, and a decade of low interest rates have taken a gradual but unmistakable toll on the annuity industry.

Annuity sales are now at their lowest point in two decades. At a time when the insurance industry hoped and expected that Boomers would be buying personal pensions, stocks have eclipsed annuities—to the point where annuity issuers are touting their products as ways for risk-averse investors to obtain equity exposure.

With a patently pro-business administration in power, you might expect IRI’s mood to be buoyant. The political wind is at its back, and the Retirement Enhancement Security Act, which it favors, could pass very soon. But optimism didn’t seem especially high in Orlando. Either the Trumpian tailwind is too volatile to inspire confidence or the IRI is marking time; no successor to retiring CEO Cathy Weatherford has yet been named. Or perhaps there was a lot of activity in the side-meetings to which RIJ didn't have access.

On the other hand, several big annuity issuers tent-poled the conference with sponsorships and speakers with energetic new stories to tell. They included AXA, Brighthouse Financial (formerly MetLife’s retail division), Great-West Financial, Jackson National Life, and New York Life.   

'Circuit Split' over DOL Fiduciary Rule?

Retirement Income Journal (commentary); Fri, Mar 16, 2018

By Kerry Pechter

The New Orleans-based U.S. Court of Appeals, Fifth District, has reversed the ruling of a federal district court and “vacated” the Obama Department of Labor’s controversial Fiduciary Rule “in toto.” In her March 15 ruling, Circuit Judge Edith H. Jones called the rule “an arbitrary and capricious exercise of administrative power.”

…But hold the celebration (or funeral, as the case may be). Earlier this week, on March 13, the Denver-based U.S. Court of Appeals, Tenth Circuit, affirmed a lower court ruling in favor of the fiduciary rule. In Judge Paul J. Kelly’s 16-page opinion, the Obama DOL “examined the relevant data and articulated a rational connection between the facts found and the decision made” and therefore did not act in an arbitrary or capricious manner, as charged by Market Synergy Group, a Topeka-based insurance marketing organization.

Though two circuit courts disagreed, the disagreement may not have been direct enough to constitute a “circuit split” that would impel the case to the Supreme Court.

What the Divergent DOL Rulings Mean: Wagner

Retirement Income Journal; Fri, Mar 16, 2018

With two federal appellate courts this week producing apparently divergent opinions in cases involving financial industry challenges to the Department of Labor’s Fiduciary Rule, RIJ turned to ERISA specialist Marcia Wagner of the Boston-based Wagner Law Group for an interpretation of the results.

RIJ: The Fifth and Tenth circuits came up with opposite decisions on the DOL this week, right? Does that mean a “circuit split” has occurred, and that the matter will have to go to the U.S. Supreme Court for resolution?  

Wagner: The decisions of the Tenth Circuit and the Fifth Circuit were only in conflict to a limited extent, because the Tenth Circuit opinion did not consider whether the DOL had authority to revise the Fiduciary Rule in the manner that it did or to issue the Best Interest Contract Exemption.

The Tenth Circuit opinion only addressed three issues under the Administrative Procedure Act:

(i)  Did the DOL provide adequate notice of its intention to exclude fixed indexed annuities from Prohibited Transaction Exemption 84-24?

(ii)  Did the DOL adequately consider the economic impact of its decision?

(iii)  Was it arbitrary and capricious for the DOL to treat fixed indexed annuities differently that other fixed annuities?

The Tenth Circuit rejected all of these claims [i.e, that DOL failed to meet its duties]. Those specific issues were not before the Fifth Circuit. Rather, the Fifth Circuit opinion invalidated the Fiduciary Rule and the BICE Exemption. The Fifth Circuit only discussed fixed indexed annuities towards the end of its opinion.

While it held that the DOL’s treatment of fixed indexed annuities was unreasonable (and to that extent its decision is in conflict with the Tenth Circuit), its holding that the DOL overstepped its authority would have been the same had there been no discussion of fixed indexed annuities.

Even though there is not a clear conflict among the Circuits, however, this case will likely be heard by the Supreme Court (although the DOL might ask the Court of Appeals for the Fifth Circuit to hear the matter before the entire Fifth Circuit, rather than just before the 3 Judges who initially decided the case.)   

In Wake of Court Ruling, DOL Will Cease Enforcing Fiduciary Rule, Source Says

Financial Advisor; March 16, 2018

Fiduciary advocates are hoping for a revival of the U.S. Department of Labor’s fiduciary rule, but a source at the agency said Friday the rule will not be enforced.

A source in the DOL said the agency will cease enforcing its fiduciary rule, which required that all financial recommendations given in the context of a retirement account be in the best interest of the client, in the wake of a court decision vacating the regulation.

"The Fifth Circuit has now vacated the 2016 fiduciary rule in its entirety. Pending further review, the department will not be enforcing the 2016 fiduciary rule," said a source from the DOL who requested to remain anonymous.

Duane Thompson, a senior policy analyst at Pittsburgh-based Fi360, expressed shock that the Fifth Circuit Court of Appeals struck down the rule.

“It’s certainly a surprising decision because it’s out of step with nearly all the other [court] decisions … that have come out strongly in in favor of the department’s rule,” the most recent being a decision Tuesday by the 10th Circuit Court of Appeals in Denver.

Merrill Lynch keeps approach despite U.S. fiduciary rule changes: memo

Reuters; March 16, 2018, 05:09 PM EST

NEW YORK (Reuters) -- The head of Bank of America’s Merrill Lynch wealth management said the firm remains committed to its approach in light of an appeals court’s decision to overturn an Obama-era regulation, according to an internal memo viewed by Reuters on Friday.

The 5th U.S. Circuit Court of Appeals voided the U.S. Department of Labor’s so-called fiduciary rule on Thursday, nullifying nationwide the 2016 measure that was meant to curb conflicts of interest among providers of financial advice by requiring them to act in their clients’ best interests. 

Life insurers looking to SEC, state regulators for 'harmonious' fiduciary rule; Friday, March 16, 2018 1:24 PM ET

Life insurance industry advocates are now looking to a trio of state and federal regulators to develop a "harmonious" fiduciary rule after a key appellate court vacated the original rule championed by the U.S. Department of Labor.

Heads of several life insurance industry lobby groups expressed their optimism that the SEC, the National Association of Insurance Commissioners and the Financial Industry Regulatory Authority would create a new standard in future rulemaking to avoid consumer confusion and competing standards among regulators.

"I believe there is now an effort for this harmonized approach so that all of these principles and these [regulators] are communicating and understanding where they are going in this proposal," Dick Kempthorne, president and CEO of the American Council of Life Insurers, said on a conference call with reporters.

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