(Chicago) — The topic of the DOL fiduciary rule was front and center at the LIMRA Annual Conference, happening now in Chicago.

Speaking at the session, “From advocacy to compliance: Moving to a post-suitability DOL fiduciary world” were:

    • Jon Breyfogle, principal, Groom Law Group (moderator)
    • Stephanie Napier, senior counsel, ERISA & Fiduciary Services, Vanguard (speaker)
    • Jamie Whetzel, vice president and general counsel, USAA Life Insurance Company (speaker)
    • Tom Zurek, executive vice president, general counsel and secretary, OneAmerica Financial Partners (speaker)

As we know, there are three parts to the DOL fiduciary rule: the fiduciary definition, exceptions to the rule, and the BIC (best interest contract) and other exemptions.

Breyfogle alerted the audience that the DOL is going to issue subregulatory guidance, which could start coming out in the near future. He urged those in attendance to watch the DOL’s website regularly.

“They’re likely to say some important things but they cannot rewrite the rule” he said. “They’re going to be able to interpret aspects of the rule but they can’t change it.”

He also mentioned he has little faith that the current litigation against the DOL and the rule will have any impact — noting he’s “not counting on it.”

Breyfogle: Jamie, talk about the challenges you and your colleagues at USAA face with DOL implementations.

Whetzel: We’ve been engaged with this rule for a very long time. Even with a simple product base with no commissions — like us at USAA — there can still be challenges with dealing with the DOL rule.

In our comment letter we talked about the fact that lower-balance accounts will potentially be squeezed out of the market. That has proven to be correct. Our advocacy then moved into a phase of focused project work. We’re not looking at the courts to solve our problems. We believe we will see an effective date in April and then in the final implementation in January of next year.

Napier: When we looked at the rule we tried to determine where we were acting as a fiduciary already. It quickly became clear that that type of analysis could get complex fast. Do we want to make what was previously a non-fiduciary activity a fiduciary activity?

Do we want to become a fiduciary in the future? If so, do we want to build out the compliance structure? Really the thing I think became clear quickly was whatever decision we decided to go with, we were going to need to beef up training and compliance. Employees need to understand what they need to do. If you decide to become a fiduciary, advisors need to understand what to do. The BIC exemption is one of the primary things people are focused on but it’s not the only choice in this space. There’s the Pension Protection Act. There are also ways to avoid conflicts entirely, such as using third parties.

Related: Ward Group: Top 50 life insurers for 2016

Zurek: The way we approached the problem was by mid-summer 2015 I had come to the conclusion that we really weren’t advancing the ball. We needed a robust examination of precisely what our business is and what the rule means for us. We needed a fresh examination of our products, our distribution and the direction we wanted to move in.

We started to view this as being quite opportunistic. This type of in-depth examination allowed us to have a more focused view as to — directionally — what we were going to be doing. We worked with Oliver Wyman. We had over 50 different business aspects we needed to examine. 

I’m bullish on the fact that I think we’re moving in the right direction for our company.

Insurance experts say that even with a simple product base with no commissions, there can still be compliance challenges in dealing with the DOL rule. (Photo: iStock)

Insurance experts say that even with a simple product base with no commissions, there will still be compliance challenges in dealing with the DOL rule. (Photo: iStock)

Breyfogle: That’s a great observation. How many of our [law firm] clients are rethinking their business and thinking about what makes sense in light of this rule? Really, senior executive involvement is definitely something that’s a good thing and extremely important.

Whetzel: One of the first things we did was team up with a law firm. There’s a huge opportunity for lawyers here — might not be good news for everyone else in the audience who isn’t a lawyer, but for lawyers, it is. Jon, for you as an ERISA lawyer, this is the Super Bowl for you.

Joking aside, the complicated nature of this rule and the intricacies of providing advice — those sorts of things are going to have the effect of making people leave the market. The challenge is people being able to provide advice to their customers and to place their product in the hands of the people that need them. There’s a tremendous market niche that’s going to need to be filled. Investors will continue to need advice. 

If you can solve the complexity of the rule, there’s a huge opportunity there.

Related: What does it mean to be a fiduciary?

Napier: I think there’s already been a fair amount of disruption in the industry going on before the DOL finalized the rule. I think those things continuing to happen alongside this rule, it’s very difficult to predict what’s going to happen.

For proprietary investment products, this rule makes it difficult to provide advice when you have these products. When you believe you have the best in the market, it’s difficult to be in this position.

I think a lot of people have been talking about this moving to passive as opposed to active investment. But it’s also driving transparency in investing.

Zurek: This is an opportunity for you to look at your distribution and determine how you’d like to modernize your distribution in an environment that has been highly competitive.

We used the rule as an opportunity to define exactly how we wanted to distribute product and with whom we wanted to distribute product.

Related: DOL 101: The fiduciary rule’s impact on insurance-only agents

The other thing I think is an opportunity is that you’ve got a legacy business and there are IT issues. We are recognizing that the rule is going to force us to transform that part of our business to become much more unitary to how we go forward. So again, there are two opportunities I see:

  1. distribution is impacted, which gives you a chance to fix challenges
  2. it’s a reason for us as an industry to step forward and change things regarding our IT infrastructure

"We’re in a very fluid environment," says USAA vice president and general counsel Jamie Whetzel. "You’re going to see people take a wait and see approach." (Photo: iStock)

“We’re in a very fluid environment,” says USAA vice president and general counsel Jamie Whetzel. “You’re going to see people take a wait and see approach.” (Photo: iStock)

Breyfogle: What are the big issues in the 401(K) space?

Napier: Our communication with participants. We are trying to leverage the data we have to communicate with participants. For years we have been moving towards a more individualized participant education experience.

The simpler we can make these messages, the more likely they are to lead to action by participants. This DOL rule is pulling back on a lot of that improvement with our communication.

Some might say, ‘So what? Just be a fiduciary for those communications.’ But we’re talking about being a fiduciary for those clients that are not engaged. How do you communicate effectively but stay on the non-fiduciary side with your communications?

Breyfogle: You could possibly see companies going all in and saying, ‘We’re going to be a fiduciary record keeper.

Zurek: The DOL has had a point of view about the things we all do for a long time. I pose this to you all: Say you have a record-keeping operation and a call center. A plan participant will call in and say, ‘I don’t know what to do, what should I do?’

That’s the call. It’s not the caller saying, ‘I know precisely what to do, just do it for me.’ That’s not the way it works.

We will spend a lot of our time in the next six months and up to the beginning of 2018 identifying those communication requirements that are going to be imposed upon our people.

Whetzel: Good advice not taken isn’t worth very much.

Breyfogle: Do you guys see your compliance coming in waves? Maybe an April compliance that looks different from a January 2018 compliance? 

Napier: I agree that this is going to go well beyond 2018. There’s an extraordinary amount of work to get to compliance within the next six months for anyone in this room. We’re looking at it in waves. A wave that goes beyond 2018.

Whetzel: We’re in a very fluid environment. You’re going to see people take a wait and see approach. And you’re going to see people go with a more fully-baked strategy.

Beyond 2018 I think the disruption will continue. People will need to leverage digital more than they do today to make advice affordable, actionable and deliverable. Right now the digital capabilities are not where they need to be to fulfill a regulatory responsibility.

See also:

A DOL fiduciary rule compliance checklist

DOL fiduciary rule: On a collision course with the law?

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