The Department of Labor’s proposed fiduciary rule in respect to retirement planning advice is bad news for the industry. Unless changed, it could lead many life insurance and financial service professionals to exit the business or revamp their practices. And the proposal could leave consumers most in need of retirement planning advice in the cold.
That’s the view of Phillip Harriman, past president of the Million Dollar Round Table and co-owner of Lebel & Harriman, a financial services company. During the MDRT’s annual meeting in New Orleans, held June 13-17, Harriman offered a perspective on the DOL proposal, as well as a host of other issues — on technology, compliance, captive reinsurers and the rule-making process — during an interview with LifeHealthPro Senior Editor Warren S. Hersch.
The following are excerpts.
Hersch: What compliance or regulatory challenges are of concern to you this year?
Harriman (pictured at right): The most glaring reality for financial advisors is the notion that the government, particularly policymakers in Washington, feel that they know best how to help manage retirement plans. While I can appreciate their concerns, I’m also worried that their zeal for new policies and procedures is making retirement planning a lot more complex and confusing for the consumers.
Take the fiduciary rule proposed by the Department of Labor; it’s an assault on the professional financial advisor. Maybe what the DOL is trying to do is weed out financial professionals who, licensed to sell products on commission, are just trying to close deals and make a quick buck.
In the DOL’s effort to identify those areas where consumers are not getting the best advice or are paying extraordinary costs for retirement planning products, they’re also creating a [hostile] environment for those of us who have dedicated a career to this profession. The rule, as now proposed, implies that prices must come down dramatically; and that scrutiny and potential liability must increase dramatically.
Hersch: If the DOL rule is implemented as now drafted, do you expect the industry will suffer the same fate as the UK, which saw an exodus of advisors after the phase-out of commissions?
Harriman: Yes, the proposal is a recipe for chasing a lot of competent and talented advisors out of our space. Consumers will pay the ultimate price for the DOL’s regulatory agenda — more than they realize.
Of course, certain advisory firms, such as ours, will adapt to the new regulations. But our relationships with clients will become more formal; we’ll have to bill for our time or charge a flat fee for services. We’re migrating in that direction as we speak.
The transition will be good for our cash flow because the compensation is more predictable and stable. But I fear that people most in need of retirement planning will not be able to afford — or will choose not to pay for — fee-based advice. Commissions will go by the wayside; and retirement planning will become a do-it-yourself project.
Hersch: The DOL rule aside, are you leveraging technologies to try to alleviate the compliance workload?
Harriman: Technology has helped a lot. And so has the relationship we have with our broker-dealer, Valmark Securities. They keep us in the loop respecting our regulatory responsibilities. We also have a person on payroll who just deals with compliance issues — down to the smallest details. That can range from preparing compliant-ready radio ads to drafting letters to send to clients and prospects.
Hersch: There’s a growing interest among carriers and advisors in electronic processing of insurance applications, in part to reduce compliance issues. How much do you use e-apps in your practice?
Harriman: More e-apps are coming to market. I’m optimistic they will offer a more effective and efficient way of issuing life insurance policies. At present, we’re still processing most apps on paper with our partner carriers; only a few offer electronic processing. I don’t know why more haven’t made the transition to digital.
The life insurance profession gathers the most sensitive financial, personal and medical info that a person could be asked to reveal. And it does so in an insensitive way. So any technology that makes that policy application process less cold and bureaucratic for the client would be a big step in the right direction.