Though not as onerous as many anticipated, the final DOL fiduciary rule carries vast implications for carriers and small insurance agencies alike.

With the Department of Labor’s finalized amendment regarding the regulations on fiduciary responsibility for retirement products — including annuities, life insurance and other life products — it’s timely to take a look at the compliance implications for carriers, distributors, agents and advisors.

Over the past 18 months, the retirement industry has been attempting to gain a complete understanding of the U.S. Department of Labor’s foray into regulating the sale of insurance products. The major trade association that works with the retirement industry is the Securities Industry and Financial Markets Association (SIFMA), which has been instrumental in working with the industry to get the federal Department of Labor (DOL) to understand the effects of the DOL’s proposed fiduciary and responsibility regulations.

While retirement products and services have both been the object of regulation, the DOL created a regulatory concept that neither the states nor the Securities and Exchange Commission (SEC) have broached: The “Best Interest” rule. Today the DOL provided some clarification about the “best interest rule” and it seems like an Emily Litella moment of “oh, never mind.” What the DOL announced today appears to bring some of the draconian possibilities of the rule down to a more realistic viewpoint. 

Where the rule was originally thought to mandate that products and services had to clear an undefined regulatory definition, it now is simply a requirement that the advisor or agent document that they are working in the best interest of the client. Left unaddressed by the DOL in their statement is the issue about commissions and fees and their disclosure. The industry is in a wait-and-see mode regarding the complete set of regulations.

SIFMA notes that this single issue has generated over 3,500 letters from companies, advisors and other professionals expressing concern over the concept and scope of the DOL’s proposed rules for companies that provide products and services to retirement plans and the professionals who sell them. The DOL is using ERISA (the Employee Retirement Income Security Act of 1974) regulations as their regulatory authority for the proposed regulations. 

With the implementation date moved back to January 2018, there is ample time for the DOL to more fully define their regulatory oversight for products, services, and their ongoing costs. While the DOL’s announcement gives some solace to the retirement industry, most will continue to cast a wary eye at the agency. For example, as yet, it is unclear as to how the DOL regulations will affect the common commission of overrides and other compensation paid out to regional managers, distributors and others. But the overall intent of the regulations is to have all sales commissions and charges disclosed and reported to the client, as well as to the DOL. Either way, it would do well for the industry to prepare for a more complex set of regulatory requirements; as history shows, it rarely gets simpler.