PMG Power Blog: 5 Surprises in the New DOL Fiduciary Standard

After months of speculation and consternation, the Department of Labor finally released their new fiduciary standard for all to see. What a marvel it is too; a real work of regulatory art. A thousand pages of legal mumbo jumbo chockfull of incredibly boring jargon and endless opportunities for unintended consequences.

But that’s not the best part. The best part is all of the surprises hidden inside. Just when I thought I had a pretty good handle on what to expect, WHAM! I should have known. This is government.  

Let me be clear. I get what the DOL is trying to accomplish. I really do. I even admit some of the changes to the original proposal are positive. Heck, it’s a pleasant surprise any time the government actually listens to the people and adjusts a plan. However, some of these changes are not good for those of us who sell insurance products. Certainly not in the short term. Time will tell in the long term.
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Now that I got all of that off my chest, allow me to share a few things that really caught my attention as I started enveloping myself in this instant classic.

1. Did you say BICE?
   
   Let me start with the biggest and most painful surprise. The DOL has decided to group fixed indexed annuities together with variable annuities, and require both to meet the obligations of the Best Interest Contract Exemption. Most of us in the business expected indexed annuities to be treated like traditional fixed annuities, falling under the less restrictive Prohibited Transaction Exemption 84-24 (PTE 84-24).
   
   Worse than the decision to treat FIAs like VAs is the justification: Fixed Indexed Annuities are complicated.
   
   Seriously? That’s their justification? I don’t even know how to respond to that. Call me a conspiracy theorist, but something smells rotten about this. One of the best-selling retirement products on the market, one that’s been a thorn in the side of many in the financial services industry for years now, is suddenly and mysteriously cut off at the knees? Hmm… Sounds shady to me. But I digress…
   
   
2. Nowhere to go but up.
   
   This little surprise is the direct result of the BICE decision, but it’s worthy of mention. Now that FIAs fall under the BIC exemption, agents and advisors that distribute them will be exposed to greater risk of litigation. Yes, it will now be easier for clients unhappy with the performance of their FIA to take you to court. That doesn’t mean they’ll win, but they can do it.
   
   So what coincides with an increased risk of litigation? You guessed it… higher E&O insurance premiums! Rest assured our team will be watching this closely. As we move into implementation, we’ll develop and share a variety of strategies to help you keep increases to a minimum.
   
   
3. Timing is everything.
   
   One pleasant surprise in the new rule is the implementation timeline. The DOL has graciously implemented a more phased-in approach. Partial implementation of PTE and BICE begin April 2017. Full implementation will kick in January 1, 2018. See, they’re not all bad.
   
   
4. Well, what can I say?
   
   Another good bit of news is the DOL narrowed down what constitutes investment advice. The final rule is reportedly much clearer on the types of information and activities that are considered non-fiduciary investment education. Newsletters, conference presentations, marketing materials, market research and other items for general distribution are not considered investment recommendations. Imagine that.
   
   
5. Income for life is still alive… sort of.
   
   The DOL included language in the BICE to clarify disclosure requirements that are better aligned to how insurance products, particularly FIAs, are sold. In addition, PTE 84-24 provides a more streamlined exemption for recommendations of traditional fixed rate annuities.

 
There’s more to the DOL’s new fiduciary standard than I’ve shared here. A lot more.
 
This is by no means a complete analysis of the changes from the initial proposal, much less the full impact of the rule. Attempting to follow this over the past several months has been a real adventure. As you can imagine, we need more time to review all of the details and interpret the intent and impact of each requirement.
 
However, we’ve begun sorting through all the information. We’ve gathered up the good stuff and posted it in one convenient place so you can learn more about these changes yourself and see how they will directly affect your practice. You can access that information here.
 
We’ll continue doing our best to keep you informed through future webinars, downloads, blogs, and articles as well.
 
Change presents challenges, but we’ll do what we always do. We’ll adapt and thrive. The time for crying and gnashing of teeth is over. Now it’s time to get down to it, and prepare for implementation.
 
‘Nuff said.

Written by: Paul M Mallett SVP/COO Postema Marketing Group, LLC

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