The new U.S. Department of Labor sales standard proposal could impose a fiduciary obligation on commission-based annuity sales agents.
Two executives from the American Council of Life Insurers (ACLI) — James Szostek and Howard Bard — write about that possibility in the ACLI comment letter on the new DOL sales standard proposal.
A fiduciary obligation requires an affected financial professional or company to put the investor’s needs first. A financial professional subject to a fiduciary obligation might not be able to collect commissions or other sales-based compensation and may, in some cases, have to recommend products or strategies that the financial professional cannot sell, or cannot earn compensation for selling.
Both supporters and critics of the proposal say the Labor Department has tried to make its new Impartial Conduct Standards proposal compatible with the U.S. Securities and Exchange Commission’s Regulation Best Interest. The SEC’s Reg BI makes it clear that financial professionals can collect commissions for selling individual life insurance and individual annuities and need not act as a fiduciary. The department’s proposal brings back an old “five-part test” for determining when a financial professional should be acting as an investment advice fiduciary.
- A copy of the ACLI comment letter is available here.
- An earlier article about the DOL Impartial Conduct Standards proposal is available here.
The ACLI contends that a portion of the preamble, or official introduction to the proposed regulations, implies that collecting commissions for selling annuities to consumers who are rolling over retirement plan assets could turn an annuity sales agent into a fiduciary.
“The department’s regulation defining ‘renders investment advice’ does not address what it means to do so ‘for a fee or other compensation, direct or indirect,’” the ACLI executives write. ”The preamble might be read to mean that, at least in certain instances, it is the department’s view that when the five-part test is satisfied and a financial professional receives some form of compensation, the professional is necessarily an investment advice fiduciary.”
The ACLI executives say that view could conflict with the goal of giving consumers access to affordable annuity sales agents, who simply sell annuities, with no out-of-pocket costs for the consumers, along with access to investment advisors, who should act as fiduciaries and may charge fees for their services.
“Sales recommendations in which a commission is paid only when there is an investment transaction must not be viewed the same as investment advice under a relationship in which compensation is paid regardless of whether the advice leads to an investment transaction,” the executives write.
The SEC has already clearly carved out an exception from the fiduciary rule for broker-dealers who make recommendations, without being fiduciaries, solely in the course of carrying out investment transactions, the executives write.
— Read How DOL’s New Fiduciary Rule Would Affect Rollover Advice, on ThinkAdvisor.