A New Class Action Theory for Breach of Fiduciary Duty by Brokers Recommending Variable Annuities Is Being Advanced, But Should Not Survive
February 20, 2019 by Alston & Bird
Our Securities Litigation Group explains how the novel theory from the plaintiffs’ bar to bring a breach of fiduciary duty class action could foreshadow an increase in financial firms’ litigation risk.
- The complaint’s allegations
- Dicta from the Georgia Supreme Court
- Holes in the plaintiff’s theory
A class action was recently filed in the U.S. District Court for the Northern District of Georgia against a variable annuity company and its captive broker-dealer asserting a novel theory of classwide liability for purported breach of fiduciary duty because the broker-dealer recommended its parent’s variable annuity investments for customers’ tax-qualified retirement plans. The theory plays off the plaintiffs’ bar’s success in ERISA fee cases[1] by cobbling together the all-too-familiar saw about the unsuitability and expense of variable annuity products for tax-advantaged accounts and an expansive reading of dicta from a 2010 Supreme Court of Georgia decision about the nature and scope of a broker’s fiduciary duty to its customers in nondiscretionary accounts. The plaintiff’s lawyer in the case has indicated he may be filing similar actions against other firms.
The complaint seeks the certification of the class of “all Georgia residents who purchased an individual variable deferred annuity contract or who received a certificate to a group variable deferred annuity contract issued by [the defendant], or who made an additional investment through such a contract, within the applicable statute of limitations that was used to fund a [tax-qualified retirement plan].” The complaint then alleges that the defendants “owed fiduciary duties” to the class members and breached those duties “by providing investment advice that was not in customers’ best interest in an effort to steer class members’ money into variable annuities that would pay higher fees to” the defendants.
Click HERE to read the full article via JD Supra.
