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DOL Requests Delay of Fiduciary Rule — Here's What You Need to Know

by Precise Leads

August 18, 2017

Could the DOL use the additional time to make fixed indexed annuities more compliant?

When the Department of Labor asked the Office of Management and Budget to postpone implementation of the new fiduciary rule for another eighteen months, insurance agents who sell fixed indexed annuities were definitely relieved. The proposed delay would extend the transition period for two important exemptions from January 1, 2018 to July 1, 2019.

The exemptions referenced by the DOL include the Best Interest Contract Exemption (BICE) and the Prohibited Transaction Exemption (PTE) 84-24 Rule. If enacted, the BICE would mandate that advisors detail any conflict of interests, disclose their compensation, and always act in their client’s best interests. The BICE would also require a signed contract between advisor and client, a provision many critics assert would lead to costly class action lawsuits.

The PTE 84-24 Rule allows insurance agents and brokers, pension and insurance consultants, and investment company principal underwriters to conduct certain transactions for which they receive a commission. FIA distributors and sellers prefer that their annuity product remain subject to PTE 84-24 rather than the BICE, which they consider more onerous.

Impact on FIAs, Variable Annuities

Just before the DOL’s announcement, life insurance advocacy group LIMRA estimated that implementing the fiduciary rule would halt a decades-long surge in FIA sales, reducing sales by 5% to 10% this year and 15% to 20% in 2018. Meanwhile, variable annuities would continue their protracted slump. With an even longer extension on tap, FIA and variable annuity providers can conduct business without immediately changing their practices.

Sheryl Moore, President and CEO of research firm Moore Market Intelligence, told Investment News that indexed annuity distributors were likely heartened by the delay. “We got a Hail Mary,” she said. “So they're definitely breathing a sigh of relief.”

Jamie Hopkins, Professor in the retirement income program at the American College of Financial Services, echoed Moore’s sentiments to Investment News. He said the insurance industry is “happy with the delay” because “their processes and sales don't have to change as much.”

Hopkins predicted that the DOL will use the delay to write new exceptions that will simplify the sale of indexed and variable annuities. “A lot of people are expecting during the one-and-a-half-year delay to see vastly expanded prohibited transaction exemptions," he said.

More Time to Comply with Rule

The delay provides agents, advisors, and financial services companies more time to institute conformance standards for when — or if — the rule goes into effect. It also enables insurance agents to thoroughly prepare for the regulation instead of “starting down a compliance path only to do a zig-zag” if the rule is revised, Erin Sweeney, an attorney at Miller & Chevalier Chartered which represents parties in fiduciary litigation, told the Wall Street Journal. In an interview with ThinkAdvisor, Sweeney added that the lag-time may allow regulators to come up with a provision to make annuity sales compliant with the fiduciary rule.

Many in the financial services industry, however, believe that the marketplace is moving toward a fiduciary standard with or without a rule. While the recent delay may cause some temporary confusion as to who is legally required to serve an investor’s best interests, and could result in inconsistent service standards, Duane Thompson, Senior Policy Analyst at fiduciary training and technology company Fi360, told ThinkAdvisor that “increased investor awareness and market momentum are driving more firms to embrace fiduciary status regardless of the rule.”

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