At NAILBA 35 in Dallas, which just ended, the topic of the DOL fiduciary rule was on most people’s minds. Chris Morton, senior vice president of government affairs for AALU, was on hand to decipher where the insurance industry now stands with regards to the rule.
“There are a lot of challenges but also a lot of opportunities with what’s coming out of Washington,” Morton said. “Today we have to continue to prepare as if nothing is changing. From a business perspective, we have a lot of risk if we don’t prepare.”
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The question on most of the attendees’ minds was ‘what now?’ We have President-elect Trump, who is assembling his transition team and making appointments. Does this mean the DOL rule will be altered or even abandoned completely?
“The thing to remember is it’s not as simple as come into office, get inaugurated, sign a piece of paper and were done,” said Morton. “There’s a process he has to go through to deal with regulatory changes. Something governing this is the Administrative Procedure Act. You have to go through this to make changes to something that has already been enacted.”
See also: DOL releases first fiduciary rule FAQs
Morton noted that there has already been talk of delaying the current applicability date of April 10, 2017. He reminded session attendees that there are leaders in Congress who have repeatedly said they have big concerns with the rule.
Though there is a lot of uncertainty around the rule now, Morton noted that there is an interest and willingness to explore options from all sides [of the political world]. “Especially since after the election,” he said. “If Clinton was elected, we’d not be having these conversations right now.”
Morton deciphered the DOL rule with numerous facts and calls to action.
Here are some of the key developments that precipitated the fiduciary rule:
- Obama White House/DOL: IRAs are where the ERISA money goes and the rules were too loose
- Rollovers key advice/decision point, but generally not covered by ERISA
- 2010: ERISA plans were at $6 trillion, IRAs at $4.5 trillion
- 2015: ERISA plans were at $7 trillion, IRAs at $8 trillion (almost double from 2010)
- Solution: “ERISA-fy” IRAs
ERISA may be the tail wagging the dog.
“IRA assets have almost doubled,” Morton said. “The DOL was sitting there thinking, ‘here’s our opportunity to capture more of the marketplace and regulate it.”
To his point:
- DOL jurisdiction is conduct, not license — advice to a plan/IRA is covered regardless of whether insurance, securities, banking or consulting
- Bypassed Congressional and SEC gridlock through “normal” rulemaking process
- Covers about $17 trillion in assets — will financial institutions maintain separate compliance systems or convert all?
Backers of the new fiduciary rule beleive it will “ensure that Americans who are saving for retirement will have access to financial advice in their best interest,” Phyllis C. Borzi, the assistant secretary of labor for employee benefits security, wrote in a recent blog post. (Photo: iStock)
Overview of fiduciary rule package
Morton deemed it important that agents and advisors understand the following.
- The rule package consists of final regulation redefining fiduciary advice and several new or amended prohibited transaction exemptions.
- An expanded fiduciary definition used in ERISA and in tax code prohibited transaction rules also is included.
- Exemptions — new Best Interest Contract (BIC) Exemption, revised PTE 84-24, revisions to several others — all include new fiduciary standard
“We’ve got to preserve the commission-based model and preserve options and choice for consumers,” Morton urged.
What advice is fiduciary under the rule?
There are three columns. According to Morton, you must check a box in each one to be a fiduciary under the new rule.