The National Association of Insurance and Financial Advisors told the U.S. Department of Labor earlier this week that the DOL fiduciary rule is already hurting NAIFA members, and the NAIFA members' clients.
NAIFA gathered information for a new comment letter by conducting a member survey. The group received 1,093 responses.
- 46% of the participants said the number of products they can offer clients has dropped.
- 20% said they have seen minimum account sizes rise.
- 43% said their commission compensation arrangements have gotten worse.
NAIFA President Paul Dougherty wrote in the comment letter summarizing the survey results that DOL should recognize that industry professionals may disagree about what products to offer clients.
"Avoid the de facto elimination of entire classes of products from the marketplace," Dougherty wrote.
Dougherty's letter is part of the latest wave of comments on the fiduciary rule and a related proposal, the Best Interest Contract Exemption for Insurance Intermediaries draft.
President Donald Trump brought on the latest wave Feb. 3, when he sent the DOL a letter asking officials to get more information about the possibility that the fiduciary rule and related regulations could cause problems for retirement savers. The DOL then began the process of postponing implementation of the rule, to get more time to study the effects of the rule. The DOL also put out a request for comments about the actual and possible effects of the rule. Submissions for that round of comments were due Monday.
The American Council of Life Insurers, the National Association for Fixed Annuities, the Insured Retirement Institute, and the Indexed Annuity Leadership Council were some of the many insurance and annuity organizations that wrote to say the rule and the intermediaries draft are already hurting the annuity industry.
Sen. Elizabeth Warren (Photo: NLJ)
Here's a look at what was in some of the annuity-related comments.
1. Annuity industry participants dislike outsiders' critiques of the annuity market.
Many commenters blasted the math and data choices behind an annuity sales incentives white paper Sen. Elizabeth Warren, D-Mass., recently released.
David Stertzer, chief executive officer of the Association for Advanced Life Underwriting, said attacks on annuity sellers and advisors have excluded important benefits, such as the effects that a good advisor can have on a client's saving and investment behavior.
Blake Woodard, a life insurance agent in Fort Worth, Texas, said he believes annuity market analysts have erred by assuming that all recipients of conflicted advice came to bad ends.
"Some annuity purchases may turn out well for investors, even if the salesperson's advice was biased or malicious," Woodard wrote.
Even if conflicted advice causes some problems for retirement investors, "there are far larger and more insidious conflicts of interest threatening investors than an insurance company convention in Maui," Woodard wrote. "But such conflicts do not a colorful white paper make."
2. Uncertainty about the DOL fiduciary rule, and efforts to realign product offerings to comply with the rule, have pounded annuity sales.
Joseph McKeever III and Michael Hadley, lawyers for an industry group, the Committee of Annuity Insurers, said only unthinking supporters of the fiduciary rule can see the drop in annuity sales as good news.
"Anyone who actually helps Americans secure guaranteed income in retirement, or supports access to lifetime income, must conclude that these developments exactly the adverse effects contemplated by the president's memorandum," McKeever and Hadley said.
3. A class-action lawsuit provision in the insurance intermediaries draft is unwelcome.
Representatives for John Hancock, Transamerica, MassMutual and other insurers said they believe the drafters of the intermediaries proposal wrote it in such a way that lawsuits would be the primary enforcement mechanism.
John Deitelbaum and Kevin Finnegan, two senior vice presidents at MassMutual, wrote that encouraging class-action lawsuits is a bad enforcement mechanism.
"The exorbitant expenses associated with defending class actions and the resulting settlements, which disproportionately benefit the lawyers involved, will inevitably be borne by those the fiduciary rule is designed to protect," the MassMutual lawyers wrote.
4. Consumer groups strongly support the goals of the DOL fiduciary rule.
Industry groups say complying with the fiduciary rule would be too expensive for small accounts to support that expense.
Consumer said requiring retirement advisors to put clients' interests first is especially important for clients with small account balances.
David Certner, legislative counsel at AARP, wrote that lower- and middle-income retirement investors need every penny of their retirement savings. Without the DOL fiduciary rule, retirement investors are at risk of a 1% drop in annual returns on retirement savings, Certner said.
5. Many advisors believe the DOL fiduciary rule and insurance intermediaries draft are unrealistic.
Deborah Castiglioni, the owner of a registered investment adviser firm in Missouri, said her firm already gets 60% of its revenue from clients who pay service fees.
She said, however, that the DOL rule provisions aimed at clients who still want commission-based products are unworkable.
Simply getting all of the new contracts DOL wants agents and advisor to use in place would be nearly impossible, and a fiduciary standard shift could lead to complicated questions about how advisors should handle existing, commission-based accounts.
Even helping an established client add money to an old, commission-based product could lead to a 15% excise tax on the transaction, Castiglioni said.
Castiglioni said her firm has always made a point of serving smaller clients. "That will not be the case when this rule goes into effect unless substantial changes are made," she said.
6. Advisors officially classified as fiduciaries do not necessarily act like fiduciaries.
Blake Woodard, a life insurance agent in Fort Worth, Texas, told DOL that using a commission-based registered representative gives a consumer three layers of protection: supervision from a broker-dealer; supervision of the broker-dealer by the Financial Industry Regulatory Authority; and supervision of FINRA by the U.S. Securities and Exchange Commission.
"By contrast, the RIA world has only one layer of protection," Woodard said. "The RIA only occasionally is audited by either the SEC or, for smaller RIAs, the RIA's state securities board.... Bernie Madoff was a fiduciary."
--- Read NAIC Tees Up on Annuity Suitability Models on ThinkAdvisor.