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May 19, 2015 at 02:20 AM
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?
