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May 06, 2024 at 12:19 PM
What You Need to Know
- The original draft of a fiduciary rule exemption for agents included only sales commissions.
- The new version covers all reasonable compensation.
- One question is how much the conduct standards will conflict with Reg BI standards.
The Labor Department’s free zone for independent annuity producers under its is more flexible than what the department proposed in the fall, according to a team of retirement services lawyers at Groom Law Group.
Originally, the department would have created a fiduciary standard exemption from its new rollover advice regulations only for independent producers collecting insurance sales commissions, the team says in commentary.
The exemption draft would have excluded revenue-sharing payments, administrative fees and marketing payments from the insurance sales commission definition.
“Instead, the final amendment covers the receipt of ‘reasonable compensation,’ both cash and non-cash from any and all sources, subject to compliance with the exemption’s Impartial Conduct Standards and other applicable conditions,” the team says.
What it means: If the new Labor Department approach survives court challenges, skepticism in Congress and the impact of the November presidential elections, law firms could find ways to help agents, brokers and advisors live with it.
The exemption: A fiduciary standard requires the people and companies subject to it to put the clients’ interests first and to avoid and disclose conflicts of interest.
The Labor Department’s updated definition of fiduciary in its new retirement security rule applies to people and firms that help retirement savers roll assets from 401(k) plan accounts and individual retirement accounts into other arrangements.
Independent insurance producers can use a separate document, an updated version of Prohibited Transaction Exemption 84-24, to get paid for selling fixed annuities and other insurance products with an investment component that are not regulated as securities, such as universal life insurance.
Other people and companies that help retirement savers with rollovers must use a separate, less flexible exemption, Prohibited Transaction Exemption 2020-02, which requires an insurance company or other organization to assume responsibility for fiduciary rule compliance.
PTE 84-24 details: The Groom Law team notes that, like the draft of the PTE 84-24 update, the final version narrows the range of people able to use the exemption.
