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April 24, 2024 at 12:15 PM
What You Need to Know
- DOL officials say the regulations could affect as many as 86,410 independent agents and brokers.
- They doubt the new requirements will hurt the supply of affordable investment advice.
- Their own figures show that annuities have been outperforming mutual funds.
The Labor Department’s new retirement investment advice fiduciary definition could cut annuity industry fee revenue by an average of about $3,100 to $5,100 per annuity agent, broker or advisor per year.
The definition could affect a total of about 1,577 career insurance agents, 86,410 independent agents and brokers, and 16,398 registered investment advisors, and the industrywide revenue hit could be about $325 million to $530 million per year over the next 10 years, Labor Department officials estimated, based on separate impact analyses provided by Morningstar and an academic paper prepared by a team of researchers led by Vivek Bhattacharya.
Officials reported that U.S. life insurers generated $286 billion in fixed annuity sales and $100 billion in variable annuity sales in 2023, based on data from LIMRA.
“The department expects the final rule and exemptions will not significantly impact the overall availability of affordable investment advice, but rather improve the quality of this advice as conflicts are removed,” officials said.
Officials included the impact figures in the packet for the new investment advice fiduciary definition regulation, which is set to appear in an official regulatory publication, the Federal Register, Thursday. The Labor Department posted a preview version of the final regulations Tuesday.
What it means: Labor Department officials believe their new regulation will save affected retirement savers who buy annuities about 1% to 2% of what they’ve been spending on annuities.
The backdrop: The new definition is supposed to affect people and companies that regularly provide investment recommendations for retirement savers who are using 401(k) plans, individual retirement accounts and other arrangements that qualify for special federal income tax treatment.
Labor Department officials say they have the authority to regulate retirement advice affecting IRAs as well as employer-sponsored retirement plans because the Employee Retirement Income Security Act gives the Labor secretary broad powers to protect the nest eggs of workers who save for retirement using accounts that qualify for special tax treatment.
The new definition could affect investment options inside life insurance policies, health savings accounts and other types of arrangements as well as mutual funds, stock portfolios and annuities.
The definition excludes term life insurance; disability insurance; platforms that help consumers compare investment options without providing personalized recommendations; sales pitches delivered by people who make no claim to be trusted advisors; and general investment commentary and education.
