WASHINGTON — The final rule imposing a new fiduciary standard on the sale of investment products by the Department of Labor (DOL) makes “some meaningful improvements” from the proposed rule, a top official of Prudential Financial said this week.
Stephen P. Pelletier, executive vice president & chief operating office of the U.S. business unit of Prudential, said a major change for the company’s adviser unit from the proposed to the final rule is that it made the process for obtaining the required contract under the Best Interest Contract (BIC) exemption “less onerous than it originally was.”
Pelletier made his comments on the conference call with analysts that Prudential hosted Thursday in response to the release of its first-quarter earnings. The questions were asked by Randy Binner of FBR Capital Markets & Co. It marked the most significant comments on the impact of the new DOL fiduciary rule by major insurance issuers since the rule was finalized last month. The rule starts going into effect in April 2017, with final implementation phased in in 2018.
A key issue Binner brought up was the potential apportionment of legal liability between issuers and distributors of variable annuities.
“I’m not going to get into an apportionment of legal liability,” Pelletier said. But, he added, “I would point out that manufacturers [of VAs] will have a responsibility to perform certain processes and provide certain information to distributors so that they can fulfill their obligations under the contract.
“And we are making the necessary preparations to do exactly that,” Pelletier said.
Pelletier added that for annuities, the DOL did attempt to clarify the circumstances under which higher compensation for the sale of more complex products requiring more upfront time by the advisor is permissible, so long as that compensation is reasonable.
“And What that means will play out over time,” Pelletier said. He said the final rule did not include an exemption that would have favored lower cost products, such as index funds over higher-cost, higher-value products.
“So, while these changes could help mitigate adverse impact on the VA sales, we do want to emphasize, we think it’s really still premature to offer any predictions as to what that impact will be.
“That’s going to play out over multiple years through the lens of advisor behavior and firm behavior,” Pelletier said. “So, we’ll see … “
Earlier, Binner asked the same questions about potential legal risk associated with sale of VAs — Will it rest with the wholesaler or the distributor? — dealing with annuities during the MetLife earnings conference call with analysts.