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Regulation and Compliance > Federal Regulation > DOL

5 Financial Professional Ideas for Improving the DOL Fiduciary Rule

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The Trump administration seems to be doing all that it legally can to put the U.S. Department of Labor’s fiduciary rule on the back burner.

The DOL is doing what it can to postpone enforcement of the rule itself, and of the “prohibited transaction exemptions,” or batches of formal guidance, that could apply to annuities and other insurance-based products used in retirement planning arrangements.

But time passes, elections come, and DOL officials change. Officials at the DOL, or the U.S. Securities and Exchange Commission, eventually could return with another version of the rule.

(Related: New Group Lobbies DOL on Fixed Indexed Annuities’ Treatment Under Fiduciary Rule)

Some life insurance agents appear to be resigned to the idea that the rule could return, and interested in giving federal regulators advice about how to make DOL Fiduciary Rule II more compatible with their efforts to insure clients against outliving their retirement assets.

Here’s a look at five ideas life agents and other financial professionals gave the DOL in comments on the department’s recent proposal to delay enforcement of the rule exemptions that apply to annuity distribution arrangements. These are drawn from a collection of comment letters the DOL posted here.

1. Be practical about how long it takes to implement any new requirements.

Andrew Payne, the general counsel of Leawood, Kansas-based Creative One Marketing Corp., points out that the DOL had made final regulations for banks, broker-dealers and registered investment advisors available in April 2016, but, as of mid-September, still had not released final rules for the kinds of independent market organizations that distribute indexed annuities.

“It will be impossible for IMOs to reach a full level of compliance by January 1, 2018, considering these circumstances,” Payne writes.

He notes that Creative One handles about 10,000 annuity applications per year.

To meet a full-blown fiduciary rule standard, the company would probably have to hire two to six people, and, possibly, more, to conduct fiduciary rule reviews.

Hiring those people could take at least 90 to 120 days, and the cost of each hire might be equal to about 25% to 30% of each new hire’s annual salary, Payne estimates.

An IMO like Creative One could probably comply with a rule like the DOL fiduciary rule in 21 months, but not in just two months, Payne writes.

2. Keep it simple, and low-tech.

Lance Hunt, an agent with Fort Collins, Colorado-based Financial Integrity Design L.L.C., pleads with regulators to keep any new rules easy to administer.

Piggy bank in a vise (Image: Thinkstock)

(Image: Thinkstock)

Any new rules should be “easy to understand and implement without having to buy expensive software in order to try and stay in compliance,” Hunt writes.

3. Consider building on existing U.S. Securities and Exchange Commission capabilities.

Greg Georges, an advisor at Oakmont, Pennsylvania-based Greenline Advisors, notes that he reads about advisors who try to take advantage of their clients every week, in the news.

“These advisors are prosecuted and put on display for all to see,” Georges writes. “So why do we need the DOL to get involved when the Securities and Exchange Commission takes care of this perfectly well? If change is needed, allow the SEC to take steps to improve on how to better police and prosecute the bad eggs.”

4. Be tougher on more complicated products.

Hunt, the Fort Collins agent, suggests that regulators could consider exempting true fixed income annuities, or indexed annuities, that come without any special, complicated riders from any new advice rules.

“Only the annuities that carry the riders that make the contract almost impossible for a consumer (and many agents) to understand should be exposed to the new proposed rules,” Hunt writes. “It should not make difference in the rules if these are sold as an asset under management (fee-based) or a commission basis.”

5. Avoid favoring one type of product over another.

Robert Moore, chief executive officer of San Diego-based Cetera Financial Group Inc., takes a different position from Hunt on the issue of product neutrality.

He contends that any new rules “should be principles-based and not specific to any product or asset class.”

“If a recommending a given product is easier under a regulatory regime, financial advisers may have both a conscious and subconscious bias in favor of it over another investment that requires additional effort or creates additional exposure,” Moore writes.

Relatively broad, principles-based rules can help keep regulations from locking financial services companies into offering certain types of products or business models, Moore writes.

Otherwise, he writes, “the ultimate effect will be to pick winners and losers among providers of financial services instead of letting the marketplace perform this critical function.” 

— Read State Fiduciary Rules Create a Regulatory ‘Mess’ on ThinkAdvisor.

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