DOL Fiduciary Rule May Require All Rollover Options’ Fee Info

The new U.S. Department of Labor fiduciary rule proposals could lead to big changes in the types of information that annuity professionals would have to gather and present to clients, on top of everything else.

Annuity compliance law experts talked about the proposed information-gathering changes Tuesday during a webinar organized by the National Association for Fixed Annuities, a group that has been working to shape federal annuity sales standard proposals for more than a decade.

The suitability rule updates now being rolled out in most states already require agents and advisors to show clients a range of options and explain their recommendations when presenting annuities.

The new DOL proposals would go a step further: They would require annuity professionals to show the costs associated with each option.

What it means: If anything resembling the proposed DOL product comparison standards takes effect, retirement product providers will need to develop new product information services to support the annuity professionals.

The DOL fiduciary rule proposals: The proposals could affect agents selling any insurance or annuity product not regulated by the U.S. Securities and Exchange Commission to a client using rollovers from a 401(k) plan account or other retirement account to pay for the product.

The agent could still collect commissions but would have to put the client’s interest first, would face new disclosure rules, and might face exposure to future lawsuits for disappointing recommendation performance.

The U.S. House has voted to approve amendments that could block DOL officials from working on the fiduciary rule proposals.

President Joe Biden has vowed to veto the package that contains the amendments, but the fiduciary-rule-blocking amendments could still become law.

The product review information: Andrew Payne, the general counsel at CreativeOne, told webinar attendees that, under the proposed regulations, an annuity professional would have to assess the situation of a client who wanted to roll assets over from a 401(k) plan into something else.

The rollover assessment would have to include a range of options, including the client’s own 401(k) plan account.

The professional would have to present:

• The reasons for any strategy recommendations.
• The fiduciary standard or other standard of care associated with each option included in the assessment.
• The fees and expenses associated with each option.

“This is asking an independent insurance agent to find 401(k) fee information,” Payne said. In some cases, he said, an agent might be able to find the information by digging through public plan filings. In other cases, a plan might be too small to have public filings.

“So, that’s going to be a part where you probably can’t do that on your own,” Payne said. “You’re going to need a good tool, a good solution, to really help automate that.”

An agent would have to give the rollover assessment to the insurer, as well as to the client, because the insurer would have to perform its own analysis of the proposed rollover, Payne said.

The process: Pam Heinrich, NAFA’s general counsel, called the rushed nature of the fiduciary rule proposal comment period and hearing timeline unprecedented.

Tyler Brown, assistant vice president of government affairs with Sammons Financial Group, said he thinks Labor will try to complete work on the proposals by the spring or summer, to avoid taking longer than 60 legislative days and coming under the Congressional Review Act, a law that would make it easier for Congress to block the proposals with just 51 votes in the Senate.

Another factor is the 2024 general elections, Brown said.

“Who knows what the makeup of Congress and the executive branch is come 2025,” Brown said. “They’re motivated to get it done as soon as humanly possible, given that tough timeline.”

The regulations could take effect 60 days after the completion date.

“That’s very, very aggressive,” Brown said.

Companies would have to do a lot of work to implement the regulations, he added.

“We need a lot more than 60 days,” he said.

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