8.31.2009 The U.S. District Court for the Western District of Oklahoma ruled in Thomas v. Metropolitan Life Insurance Co., No. 5:07-cv-00121 (W.D. Okla. Aug. 31, 2009), that a Metropolitan Life Insurance Co. (MetLife) representative was not subject to the Investment Advisers Act of 1940 (1940 Act) and did not have the fiduciary obligations imposed by advisers under the 1940 Act when selling plaintiffs a proprietary life insurance policy. The court held that the broker-dealer exception applied to the representative, which allows a broker-dealer to provide investment adviser services that do not fall under the 1940 Act so long as those services are “incidental” and the representative receives no special compensation from the services.
The court concluded that the MetLife defendants prevailed on all three prongs of their argument for application of the broker-dealer exception from the 1940 Act. The court felt the defendants’ weakest argument, however, was the second prong of the test, which requires the investment adviser services to be “incidental.” The court relied on an SEC opinion letter in Financial Planning that indicated to the court that at the time of the passage of the 1940 Act, Congress understood it was exempting broker-dealers who “commonly” gave investment advice as part of their brokerage business. The court also concluded that because broker-dealers are required to perform suitability analysis in connection with their product sales, that suggests that the word “incidental” should be construed to mean “attendant to” rather than “a minor part of.”
Click https://ecf.okwd.uscourts.gov/doc1/14911732476 to access the decision.