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Proposed DOL annuities revisions could mean big changes for advisors

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The Department of Labor (DOL) has proposed changes to the fiduciary rules that would mean changes to the way some types of annuities are categorized and affecting the way they are regulated. Advisors selling annuities must become familiar with the proposed revisions to ensure that their sales practices comply with the rules.

The proposed DOL rules mean that advisors who sell annuities must be aware of the potential changes, and make sure they adhere to the stricter regulations.

Today, fixed annuities and variable annuities are regulated quite differently. Fixed annuities are treated more as insurance, while variable annuities are treated more as investments.

Variable annuities are regulated as securities under the federal securities laws. Before variable annuities can be sold to the public, they must be registered with the SEC under the Securities Act of 1933, also known as the Truth in Securities law, requiring investors to receive financial and other important information concerning securities offered for public sale, and prohibit deceit, misrepresentations and other fraud in the selling securities.

Fixed annuities are treated very differently under existing law. With fixed annuities, the issuing insurance company guarantees a specific rate of return to the contract owner, and fixed indexed annuities (FIAs) are not subject to the same laws as variable annuities. The Dodd Frank Act Reforms enacted in 2010, which included comprehensive reforms in regulating the financial services industry, exempts FIAs from the 1933 Act.   

Under the proposed new rules, indexed annuities – including fixed indexed annuities—will be categorized differently, and they will be subject to different rules. The DOL is considering placing FIAs into the same category as variable annuities, with far-reaching implications for brokers and advisors.

As reported in, this would mean that FIAs would no longer be covered by the PTE 84-24 exemption that “protects compliant advisors from IRS penalties that may apply if the advisor enters a prohibited transaction (though not from litigation initiated by a client), and is generally considered to be less stringent than the best interests contract exemption that is expected to govern variable annuities once the rules are finalized.”

According to, the DOL’s proposed revisions to PTE 84-24 require that advisors who sell annuity products through IRAs and other tax-qualified retirement plans adhere to an “impartial conduct standard,” meaning that they will be required to provide certain disclosures (involving both product features and advisor compensation) to clients. However, the proposed rules don’t require advisors to enter into a formal contract with clients.

If the new rules do change, and FIAs and variable annuities are governed by the same rules, advisors who sell annuities must adhere to the best interests contract exemption (BICE), expected to govern sales of both variable and potentially fixed indexed annuities, to avoid any liability. BICE enables advisory firms to continue to set their own compensation practices as long as they meet certain requirements. Under BICE, advisors must enter into a formal contract with the client that commits the advisor to act in the best interests of the client and not make misleading statements about fees or commissions, and that the advisement firm has identified conflicts and compensation structures that might cause an advisor to fail the best interests standard. BICE also requires that all feed must be disclosed to clients, and advisor compensation be “reasonable.”

The final version of the DOL fiduciary rules isn’t expected before the spring of 2016, advisors should prepare for the potential changes now so they will not be caught off-guard once the new rules are in place.


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