The proposed DOL fiduciary rule has been weighing heavy on the industry’s mind since it was introduced back in April. Some sides say it will have a significant negative impact on advisors and insurers that sell annuities while others feel the claims are overblown. Here at the 2015 Advisor Network Summit, the feeling was a bit of anger mixed with caution when the topic of the proposed rule came into play.
Chip Anderson, executive director of NAFA, spoke at length on the issue.
Anderson reminded those in attendance that, in theory, the proposed rule is intended to protect retirement savings, impose a uniform standard and eliminate conflicts of interest. But some say that, as written, the consequences for advisors, agents and insurance companies could be dramatically different.
“This proposal is supposedly helping the clients,” Anderson exclaimed during his presentation. “This DOL proposal is probably going to do just the opposite, however.”
Anderson went on to show the difference between the old definition of “fiduciary” and the new, proposed definition.
First, the old
Definition of fiduciary under 1975 ERISA (current law): Regulation 29 CFR 2510.3-21(c) defines the circumstances under which a person renders “investment advice” to an employee benefit plan within the meaning of section 3(21)(A)(ii) of ERISA. A person who renders “investment advice” under the regulation, and receives a fee or other compensation, direct or indirect, for doing so, is a fiduciary under section 3(21)(A)(ii).
A person is a fiduciary if he/she does not have discretionary authority over plan assets and who for compensation:
Gives advice as the value of securities or other property
On a regular basis
Pursuant to a mutual agreement that the advice will;
Serve a primary basis for investment decisions; and
The advice is individualized (to the particular needs of the plan).
Now, the new
The 2015 proposed rule expands who would be considered a fiduciary by removing the “regular” and “primary basis” (numbers 2 and 4) from the definition. “Now it could be just one-time advice that is merely used ‘for consideration’ by the consumer,” Anderson said. For example, handing an annuity information brochure to a client or prospect.