The fight for SAFEty

The law seems like an obvious improvement to public pension systems and offers an expanded business opportunity for large insurance companies who would decide to provide them. The ramifications of the bill’s passage may seem limited for individual life insurance and annuity agents, but one final provision could have dramatic impact. The Department of Labor (DOL) is in the process of re-issuing a proposal for a fiduciary standard for all qualified plans. If enacted, the DOL’s rule would require all qualified plans, including individual IRAs, to be held to a fiduciary duty standard of care, thereby requiring all actions to be in the best interests of the client, with fee-only compensation for the broker. The Hatch bill would return authority to the Treasury Department to prescribe rules for the professional standard of care owed by brokers and investment advisors, and would require consultation with the SEC.  

The fact that there would be two standards of conduct for exactly the same products, one qualified and one non-qualified, is solely a result of DOL’s authority over the former, but not the latter. Adding a fiduciary requirement could reduce access to needed financial products and services for lower income and middle-market customers, since commissioned agents could no longer provide advice. Fifty-two percent of the total fixed annuity market is in qualified accounts. Additionally, stringent suitability standard of care is already in place as a result of diligent work to develop regulation several years ago by insurance companies, regulators and NAFA. As a result, National Association of Insurance Commissioners (NAIC) Complaint Data shows that total DOI complaints against indexed annuities dropped 81 percent between 2008 and 2011, and only one complaint per $660 million was filed in 2011. This is infinitesimal compared to securities and variable annuity complaints.

As you may remember, flush from the success of defeating SEC’s benighted Rule 151A via the Harkin amendment to the Dodd-Frank legislation, we predicted that more battles awaited, which could once again require all of our lobbying and communication efforts. Already, some editorials have attacked the Hatch bill. Senator Hatch asked for our efforts to make public the benefits of the bill and counter those who would obstruct the benefits of enhancing U.S. pensions. I will keep you informed as we support our industry and the interests of all of our customers.