By Mack Bekeza
On September 21rst, US District Court Judge Daniel Crabtree over saw a preliminary injunction hearing involving Market Synergy Group (“Market Synergy”) and the Department of Labor (“The DOL”). Market Synergy is an independent marketing organization (“IMO”) that represents 20,000 independent insurance agents and claims that the new DOL fiduciary rule will create irreparable harm to these agents. Specifically, they believe that independent agents selling Fixed Indexed Annuities (“FIAs”) should not be required to comply with the new rule.
One of Market Synergy’s primary claims is that IMOs are not considered “Financial Institutions”, a requirement to be subject to the rule, and therefore are not required to comply. They also claim that the DOL lacks the authority to regulate FIAs.
In our opinion, even if Market Synergy and other IMOs are not considered “financial institutions”, they are still selling FIAs that are primarily purchased via individual retirement accounts and, therefore, should be subject to the new rule. On top of that, FIAs typically pay notable commissions to agents, regardless if they are independent or not. In other words, these agents still need to prove that selling a FIA is in the retirement investors’ best interest.
Secondly, although states technically regulate insurance products, Judge Crabtree pressed Market Synergy, asking, “Couldn’t the federal government step in to regulate fixed indexed annuities if the states were doing a bad job regulating fixed indexed annuities?” Market Synergy agreed that if the DOL found that the states’ regulations were “woefully inadequate”, federal agencies, such as the DOL, could further regulate such products. Market Synergy essentially shot itself in the foot by agreeing to that statement.
Although Judge Crabtree is skeptical about Market Synergy’s claims, he is also skeptical whether or not the DOL has a strong claim that IMOs and their independent agents are subject to the new fiduciary regulation. In other words, there is still a possibility that an injunction will be placed on the DOL which will allow these agents to sell high commission products to retirement investors.
What are your thoughts on the case?
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Castle Rock Investment Company, formed in 2006, is an independent woman-owned SEC-registered investment adviser located in Castle Rock, Colorado. We specialize in individual financial plans and qualified service plans.