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The DOL fiduciary rule: What's to come

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(Las Vegas) “Who’s tired of hearing about the proposed DOL fiduciary standard?”

All hands in a packed room at the 2016 LIMRA Life Insurance Conference were raised. And this is how the session on the proposed DOL rule began.

On hand to speak about the regulations were:

  • Mark Smith, partner at Sutherland Asbill & Brennan LLP
  • Jill Peckingham, senior manager at EY
  • Marcel Weiland, director of enterprise solutions at Riskalyze 

For the speakers, the second order of business was to remind attendees that, as of tomorrow, we will no longer be talking about a “proposal,” but about a final rule. “We still don’t know for sure when the text of the rule will be made available,” said Smith. “All indications are this may well be the last conversation about a ‘proposed’ rule before we have a final rule,” which is slated to be announced by the Department of Labor tomorrow afternoon

Why does this rule matter?

“The retirement market is a hugely consequential financial market in this country,” said Smith. “Roughly $19 trillion dollars are potentially at play.”

If advisors are acting as a fiduciary, providing investment advice to either an ERISA plan or an IRA — that is prohibited under federal law if the advice given results in differing compensation, or differing revenue to either the advisor or an affiliate.

“If you are a commission-based salesperson and you’re a fiduciary, that’s a prohibited transaction,” Smith explained. “If you give advice that leads to the purchase of a proprietary product, that’s a prohibited transaction. Also, you don’t get a pass simply by giving disclosure on a conflict of interest. You only get a pass if the federal government has given you an exemption.”

Peckingham noted that what EY has been hearing from clients for nearly one-and-a-half years is mostly hypothetical discussion. However, they have witnessed companies divesting themselves of business that may be impacted by the upcoming ruling.

“From a Riskalyze perspective, the firms we’ve seen have done as much as they can to prepare [for the ruling],” Weiland said. “I think we’re going to shift gears very quickly. Firms are ready to go through the final planning stages. They’re ready to build a system that’s going to be compliant with the new regulations.”

Bringing technology up to speed is by far the only thing that is most worrisome to companies and advisors within the industry. Another major concern: Prior advice that’s been given to clients.

“I’m gonna stick my neck out on this one, knowing that I might be proved 100 percent wrong tomorrow,” said Smith. “I am cautiously optimistic that we are going to see some future date set when advisors will have to begin complying. There will be a nominal legal effective date. Don’t get excited about it. The date will be there for particular legal purposes. The effective date very well may be for 60 days, but don’t get excited.

“For some elements, it may be 2017 or later before we’re legally obligated to come into compliance with certain rules,” he added.

All three speakers stressed the importance of communication throughout the business chain after tomorrow’s announcement.  

“You need to work with your vendors and technology providers to keep track of these accounts and notify the advisor when the sunset date is upcoming,” Weiland said. “It’s important to have an open dialogue with your technology vendors, especially.”

The speakers unanimously agreed it’s also important to try and view the upcoming regulation as optimistically as humanly possible. 

“We’re going to have a substantial hill in front of us to climb, but if you’re good at climbing hills, or this is a chance to get better at climbing hills, there may well be some opportunities to be added here,” said Smith.

Smith ended the session with a call to action.

“Let’s take what the DOL gives us and use it to our advantage to advance our position in the marketplace around transparency and around value proposition.”

Check out our coverage of the 2016 LIMRA Life Insurance Conference here.


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