Compliance August 14, 2024

District Court Strikes Down Missouri Anti-ESG Rules, Grants Statewide Injunction

A judge in the Western District of Missouri issued a final ruling in favor of a lawsuit filed by the Securities Industry and Financial Markets Association against two rules enacted last year in Missouri.  

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A federal court in Missouri ruled Wednesday in a favor of the Securities Industry and Financial Markets Association’s lawsuit against two regulations enacted by the state that require additional recordkeeping for advisers and brokers recommending or selecting investments with a “nonfinancial objective.”  

The Missouri rules, which took effect on July 30, 2023, required financial professionals who consider “a social objective or other nonfinancial objective”—such as environmental, social and governance factors—in their investment advice to disclose this to their clients and obtain their clients’ written consent to state-mandated language in the rules. In the order filed Wednesday, U.S. District Judge Stephen Bough issued a statewide permanent injunction halting the rules.  

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In those rules, an investment adviser’s client would be required to re-sign the document at least once every three years and every time new advice is given. 

In SIFMA v. John R. Ashcroft, Secretary of State of Missouri; and Douglas M. Jacoby, Missouri Securities Commissioner, filed in U.S. District Court for the Western District of Missouri, SIFMA argued that federal law already required advisers to act in their clients’ best interest and that the regulation would restrict that ability because it does not precisely define what a “financial objective” means.  

The first Missouri rule states that a “nonfinancial objective” is “the material fact to consider criteria in the investment or commitment of customer funds for the purpose of seeking to obtain an effect other than the maximization of financial return to the customer.” 

SIFMA also argued in its complaint that Missouri cannot, without violating the First Amendment, require financial professionals to make “politically charged statements” that are not factual. According to the complaint, the state-mandated scripts require financial firms and clients to acknowledge that incorporating these objectives will result in advice and investments “that are not solely focused on maximizing a financial return” for the client.  

The court ruled in favor of SIFMA on all counts, stating that “the rules are preempted by [the National Securities Markets Improvements Act (NSMIA)] and [Employee Retirement Income Security Act (ERISA)], are unconstitutional under the First and Fourteenth Amendments of the United States Constitution, and are impermissibly vague under the Fourteenth Amendment of the United States Constitution.”  

Because the plaintiff showed a violation of constitutional rights and that those violations would “be suffered by others in the future,” the court also ordered a statewide permanent injunction prohibiting the implementation, application or enforcement of the rules. 

SIFMA’s president and CEO, Kenneth E. Bentsen, wrote in a statement: “Congress enacted NSMIA to alleviate the redundant, costly, and ineffective dual federal/state regulation of our securities market system. Today’s ruling was necessary to prevent Missouri from violating NSMIA, among other things, and from hindering communications between Missouri investors and the financial professionals who serve them. This decision marks a major victory not only for our national securities market system, but also for our nation.”  

Bentsen also stated that federal securities laws already require financial professionals to provide investment advice and recommendations that are in their clients’ best interest, thus rendering the Missouri rules “unnecessary” and responsible for confusion. 

The Investment Adviser Association applauded the court’s decision, stating in a press release that “allowing Missouri to impose obligations on SEC advisers or their adviser personnel would have had widespread negative consequences for investment advisers with a national business.” 

The Department of Labor also has litigation pending on its ESG rule issued in 2022 regarding investing in DC retirement plans. That rule allows for ESG factors to be considered but does not require them. The lawsuit, Utah v. Su, was  from the U.S. 5th Circuit Court of Appeals. 

Any appeal of the Missouri decision would be made to the 8th Circuit Court of Appeals. 

Deals and People August 14, 2024

The Standard to Acquire Allstate’s Employer Voluntary Benefits Business for $2B

The acquisition is set to close in the first half of 2025.

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StanCorp Financial Group Inc., also called The Standard, announced Tuesday it will acquire the Allstate Corp.’s employer voluntary benefit business for about $2 billion. 

The companies will enter into a product distribution partnership, and the transaction is expected to close in the first half of 2025, subject to regulatory approvals and other closing conditions, according to The Standard. 

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The Standard’s retirement plan business provides recordkeeper and plan administrative services to employers. The company acquired Securian Financial’s recordkeeping business in December 2022, bringing on about $17 billion in assets under administration. The Standard currently lists $66.7 billion in total AUA on its website.  

Both The Standard and Allstate are workplace benefits providers with expertise in benefits administration. Allstate’s employer voluntary benefits business includes voluntary workplace benefits like whole life, universal life, accident, hospital indemnity, cancer and critical illness insurance.  

“Allstate’s Employer Voluntary Benefits business provides protection to over 3.5 million customers who will continue to be well served by The Standard,” said Tom Wilson, chair, president and CEO of Allstate, in a statement. “The alignment between Allstate’s industry leading product offerings, employer relationships, distribution and talented team and The Standard’s group benefits business will provide customers with broader protection and higher value. Allstate agents will now offer a broader array of options to customers under a five-year exclusive distribution arrangement.” 

According to The Standard, the transaction will “significantly accelerate” the company’s growth and “expand the scale and competitive position of the company’s employee benefits business in the U.S.” 

“The rationale for this acquisition is to complement our workplace benefits offerings with an expanded set of voluntary and supplemental benefits that are increasingly desired by employers and employees,” a spokesperson at The Standard said. “This addition and the on-going partnership with Allstate’s exclusive agent network bring employee talent and expertise, greater scale to our workplace benefits businesses and a comprehensive suite of employee benefit offerings that meet the needs of employers of all sizes.”

Under the agreement, The Standard will become Allstate’s exclusive carrier for sales of group life and disability, guaranteed standard issue individual disability, supplemental and voluntary products distributed by Allstate’s exclusive agents.  

Citi is acting as exclusive financial adviser, and Debevoise & Plimpton is acting as legal adviser to The Standard. For Allstate, J.P. Morgan and Ardea Partners are acting as financial advisers, and Willkie Farr & Gallagher LLP is acting as a legal adviser. 


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