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Lobbyists: Don't forget about the fiduciary standard

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The Association for Advanced Life Underwriting (AALU) is asking its members to do three things before Labor Day to not only protect your business, but to build your business:

1. Recruit a new member to AALU.

2. Share the AALU message with your clients (to inform them about what you are doing to protect your industry).

3. Share the AALU message with your congressional representatives.

AALU reports that it had more than 450 people go up to Capitol Hill during its recent annual meeting in the nation’s capital, with more than 230 meetings held with members of Congress and their staffers. The message? Beyond emphasizing that 75 million Americans rely on life insurance and that life insurers pay out $1.5 billion every day — while Social Security pays out $1.9 billion each day — it’s that life insurance must maintain its current tax treatment, even as Congress considers all options on tax reform.

Marc Cadin, AALU’s senior vice president of government affairs, told conference attendees during the AALU Washington Report general session, “Your message on Capitol Hill needs to be that life insurance and annuities are now taxed appropriately and deliver strong public policy benefits.”

Kenneth Kies, managing director of the Federal Policy Group LLC and an outside counsel to the AALU, told attendees, “If we can persuasively argue, as I believe we can, that the inside build-up of life insurance is not a tax expenditure, then we set ourselves apart from other exposed industries. Because present law relating to the tax treatment of insurance policies’ inside build-up is consistent with generally applicable tax law, it’s not a tax expenditure.”

While plenty was said of lobbying efforts to explain to Congress how life insurance works and why it is taxed appropriately, I did find it a little curious that AALU seemed strangely quiet during its annual meeting and May teleconference on the topic of a universal fiduciary standard. As both the SEC and DOL work toward issuing their own fiduciary standard rule proposals — which they may or may not collaborate on  — I heard hardly any mention about the fiduciary standard issue at the meeting.

As LIMRA, LOMA and parent organization LL Global Inc. President and CEO Robert Kerzner said in a recent blog, “Commission-based advice is under attack and the casualties are likely to be middle-income consumers.” He points out that Norway, Finland, the Netherlands, Australia and the U.K. have all banned commissions already, and if a universal fiduciary standard is instituted in the United States, it could potentially ban commission-based advice here as well.

It is far from certain that the commission-based compensation structure — the most common advice model in the United States — would be banned even if a uniform fiduciary standard does become a reality. There are ways around it. But it is a distinct possibility — and one that the industry needs to keep a close eye on.

As LIMRA research on the subject backs up, Americans have an unrealistic idea of what financial advice is worth. Kerzner’s blog points out that 8 of 10 Americans say they would pay $100 or less for financial advice. Boy, are they in for a rude awakening if commission-based compensation gets banned.

See also: Why a uniform fiduciary standard isn’t the answer

Certainly the industry needs to be vigilant and proactive in protecting the tax treatment of life insurance, but we can’t afford to let our guard down on the fiduciary standard front.

For more on this issue, see:

The full-service fiduciary

For fiduciary advocates only

How to prepare for a possible fiduciary standard