The National Association of Insurance and Financial Advisors, led by NAIFA President Juli McNeely, is spearheading an effort to block implementation of the Department of Labor’s second iteration of its proposed fiduciary rule. The association believes the proposal would impose unacceptably steep costs on registered reps of broker-dealers recommending retirement products — among them the hundreds of NAIFA members due to take up the issue when they head to Capitol Hill on Wednesday during the association’s Congressional Conference, taking place May 19-20.
In advance of the meeting, McNeely spoke with LifeHealthPro Senior Editor Warren S. Hersch to explore NAIFA’s concerns about the DOL proposal, as well as progress to date on discussions between the association’s leadership and members of the DOL staff. The following are excerpts.
Hersch: How did your recent get-together with the DOL reps go? What was discussed?
McNeely: The meeting went well; we had a very open dialogue. I was pleased, yet also a little surprised. I didn’t have a sense that the DOL staff has a true understanding of how we as advisors get compensated.
So we spent a lot of time on this issue, as well as how we select products and build relationships with our clients. We also fielded a lot of questions from them, which was great.
A more informed reading of the existing product suitability standard governing broker-dealers should surmount concerns about potential conflicts of interest resulting from commission-based compensation, but the DOL doesn’t yet share this perspective.
That said, it's a positive sign that DOL staff has asked to meet again on May 20 with me and two other high-ranking NAIFA members to go over more questions. That suggests to me they're trying to probe and understand how the product suitability model works.
Hersch: What might be the key sticking points in terms of convincing the DOL to jettison or modify the proposed fiduciary rule in favor of the suitability standard or something else the industry can live with?
McNeely: There are two main issues to address. The first of concern is the rule’s “best interest contract” or BIC exemption, which will allow firms to continue to set their own compensation practices so long as they, among other things, commit to putting their client's best interest first and disclose conflicts that may prevent them from doing so.
So the provision would have advisors sign a contract stating that they’re a fiduciary. But this will add a significant amount of expense and paperwork to the sales process — just how much more we can’t say yet.
It will take time for the carriers to determine what the added liability will be. We at NAIFA are also doing an extensive survey of our members. We're hoping to gather a lot of data we can share with the DOL to shed light on what our members believe will be the added burden to their businesses.
The second major concern is the education component. The DOL is saying that advisors can provide general education to client prospects, but the moment they transition to discussing product, they have to sign the BIC contract. This strikes me as very cumbersome. I think the BIC will undercut advisors' ability to facilitate an open dialogue with clients.
Hersch: When NAIFA’s 2015 Congressional Conference gets underway on May 19, will the DOL’s fiduciary rule figure prominently on the agenda?
McNeely (shown at right): Yes. On Wednesday, 800 of our members will go to Capitol Hill to meet with their congressmen and senators about the proposal. We have a great number of members who are keen to share their concerns with legislators. So we're excited about the timing of the conference as it relates to this issue.
Hersch: Members of the Association for Advanced Life Underwriting also went to Capitol Hill earlier this month in conjunction with the AALU’s annual meeting to share their concerns about the rule. Will NAIFA's members be echoing their views?
McNeely: I can't speak to AALU's specific talking points on this issue, as I hadn't attended the conference. But NAIFA's members will be covering two issues. The primary one will be the DOL proposal; we’ll be voicing our concerns and making lawmakers aware of the rule's potential impact.
The second focus will be tax reform. We want to be sure that Congress continues to view our products favorably. And we want to make certain lawmakers don’t not revise the federal tax code in ways that might hinder our clients’ ability to take personal responsibility for their retirement, protection and other financial planning needs. So the visit to Capitol Hill will have a two-pronged focus.
Hersch: Returning to the DOL proposal, will you be eliciting support from sister organizations like the AALU for NAIFA's position? How broad is the industry coalition on this issue?
McNeely: We're working very closely with many of our sister associations — ACLI, AALU, IRI, among others — to harmonize our position statements and advocacy strategy on this issue. To that end, we're keeping everyone informed about what we're doing. NAIFA will be bringing the biggest group of members to Congress; and so our industry partners will be very interested to see how our day on Capitol Hill goes next week.
Hersch: Is there a unified front? Do some associations oppose NAIFA's position on the DOL proposal?
McNeely: Associations whose members already operate under a fiduciary standard —those that primarily represent registered investment advisors and certified financial planners, for example — are more favorably disposed to the DOL proposal. NAIFA’s members occupy both sides of the fiduciary divide: Many sell commission-based retirement solutions governed by ERISA and provide fee-based investment advice.
NAIFA’s leadership feels strongly that we should allow our members to have a choice as to whether they work under a fiduciary or suitability standard. So, yes, there are differences of opinion. Speaking as a certified financial planner myself, I strongly support NAIFA's position.
Hersch: One issue among industry-watchers is that the current dual standards — a fiduciary standard for registered investment advisors and a suitability standard for registered reps of broker-dealers —is creating confusion in consumers' minds as to the level of care an investment advisor is bringing to the client engagement. Do you not share this concern?
McNeely: Speaking again for myself, I don't have clients who are confused on this issue. I'm licensed to both offer fee-based financial advice and sell commission-based products.
I live and work in a small community. And most of my clients-— I would venture to guess about 80 percent of them — would probably never be candidates for fee-based planning because of the amount of their retirement assets.
However, I have also engaged in discussions with the remaining 20 percent who might be candidates. And they're happy with the way they're being served now.
So I think it's important that we allow (1) the advisor to have the choice to work on commission or fees; and (2) for clients to have that choice. The decision about working with one versus the other model should not be forced on them by regulators. Rather than creating confusion, the dual standards provide consumers with choices.
Hersch: Do you agree with the belief —expressed at the AALU annual meeting by Marc Cadin, the association’s senior vice president of government affairs — that the DOL drafted its rule with a view to eliminating commissions, as has happened in the U.K.?
McNeely: I would have agreed with this position back in 2010, when the DOL released its first version of the proposed rule. Now, I believe the DOL is open [to maintaining commissions].
One of the DOL participants at our last meeting looked at me and said, "We don't want to put you out of business." I felt like she truly meant it. We do have an open dialogue with the DOL now; and we need to continue to answer their questions and enlighten them as to how the rule might affect every day Americans. So I believe there is a glimmer of hope.