While two fiduciary exemptions are in place, insurance agents can sell qualified annuity IRAs with their state insurance license.
As the Department of Labor implements its new fiduciary rule, independent insurance agents can continue to help clients rollover qualified money into a fixed rate annuity or life insurance contract. The only license insurance agents need in order to provide that service is administered by a state insurance agency.Annuity expert Kim O’Brien, CEO of Americans for Annuity Protection, reiterated that point in a recent column in InsuranceNewsNet.com. She pointed out the DOL’s Best Interest Contract Exemption (BICE) and Prohibited Transaction Exemption 84-24, allows insurance agents to receive non-fee-based compensation or commissions. However, those exemptions remain in effect only for the remainder of this year. The DOL had requested stakeholders submit comments on the provisions by July 21, which could lead the department to extend the exemptions. If the DOL decides to not continue the exemptions in 2018, PTE 84-24 will apply to only life insurance and fixed rate annuities, and not variable or fixed indexed annuities, law firm Drinker Biddle explained in a recent post on its website. The firm also noted that Independent insurance agents typically don’t qualify for the BICE provision.
Do I Need a Series 65 License?
After the DOL rolled out the fiduciary rule, many agents were told by marketing organizations and registered investment advisors that they need a Series 65 license to sell qualified annuity IRAs, O’Brien stated. Accredited by the North American Securities Administrators Association, a Series 65 license permits license holders to provide financial advice to clients for an hourly fee rather than a commission. Stockbrokers or registered representatives overseeing managed-money accounts require a Series 65 license.
But O’Brien insists that insurance agents don’t need a Series 65 to sell a qualified annuity IRA — as long as they hold a state insurance license. “If you want to offer annuities and life insurance products for guaranteed income or asset protection needs, you will only need a life insurance license in the states you intend to do business,” O’Brien explained.
Qualified money accounts are subject to the Employee Retirement Income Security Act of 1974, or ERISA, which grants them certain tax benefits such as deferred taxes on income generated within the account. Examples of qualified money accounts include 401(k)s, traditional IRAs, and simplified employee pensions (SEPs). By contrast, non-qualified plans like annuities, CDs, and mutuals funds are generally not eligible for the same tax benefits. Funds from qualified money accounts, however, can be rolled over into an IRA.
A New Model for Independent Insurance Agents?
A recent move by Principal Financial Group may have contributed to the confusion over licensing requirements. InvestmentNews.com reported that the firm sent out a memo to independent insurance agents stating that as of July 1st, it would process sales of group variable annuities — a defined contribution plan typically sold by insurance companies to smaller employees — only if the agent was a securities-licensed representative of a broker-dealer or registered investment advisor (RIA),
Principal Financial didn’t provide a comment to InvestmentNews.com, but the article quoted the memo as saying agents must "have a non-fiduciary (education only) fee-for-service arrangement directly with the plan sponsor” if they don’t have a securities license. If independent insurance agents want to continue selling Principal products next year after the BICE exemption is scheduled to run out, they must either align with an organization that has attained fiduciary certification under BICE (such as a financial institution), charge RIA advisory fees, or operate as a non-fiduciary, education-only advisor, according the Principal memo.
O’Brien pointed out in her column that insurance agents selling “packaged” investment funds (mutual funds, variable annuities, or variable products of any kind) must hold a Series 6 securities license awarded by the Financial Services Regulatory Authority (FINRA). Regardless of the DOL rule, her advice to independent insurance agents is to decide what type of advisor they want to be.
If you want to offer more expansive investment recommendations to clients, you will need a securities license. Yet agents who focus solely on helping clients mitigate their insurance risks can operate successfully with an insurance license. “If you want to remain an insurance specialist that assesses the insurance needs in a client’s financial plan and provides knowledge and competent analysis on how to fill those needs with annuities and/or life insurance,” O’Brien wrote, “that is a service and skill that is sorely needed.”