PMG Power Blog: The Fiduciary Rule: Prepare for the Worst and Hope for the Best

We’ve had a little time now for the full impact of the final fiduciary rule changes to sink in. With each day that goes by, I’m more convinced this thing is far from over. Lawsuits will be filed, and there’s a good chance the change will be flushed entirely or at least diluted enough to provide reasonable consumer protections without destroying an entire industry.
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Disagree with me if you will, but here are my reasons for optimism:

• It ain’t over ‘til it’s over. We’ve been down this road before. Our industry went through this not that long ago with 151a. The specifics were not exactly the same, but it was another example of overzealous lawmakers and bureaucrats getting slapped back into their places by the court.
  
  
• Say what? The last minute change from PTE 84-24 to BICE for FIAs caught almost everyone off guard. There was essentially no time to contemplate, much less comment on, the impact of treating FIAs the same as VAs. To justify the change by saying it’s because FIAs are complicated is just icing on the cake.
  
  
• Confirmation bias. Well-known annuity expert Jack Marrion has said the DOL’s economic analysis justifying the new rule is seriously flawed. It greatly underestimates the cost and damage the rule will inflict on the industry. According to Marrion, that fact alone is enough to toss out the entire rule in court. I tend to agree. This is textbook confirmation bias in decision-making. The DOL started with the end result they wanted, and then accepted only data that supported their position.
  
  
• Who’s in charge here? It’s not even clear to me who the DOL expects to hold others responsible for adherence to the rule. Is it the company? The agent? The marketing organization? And what is reasonable compensation anyway? This whole thing has more holes than a golf course.
  
  
• We have right on our side. This is simply a bad, poorly designed and politically motivated rule. There are so many erroneous assumptions; it’s hard to know where to start. One thing’s for certain: FIAs are not securities. That fact alone proves this is sloppy policy. Sorry Mr. President, it’s just the truth.
  
  

Having said all that, it’s still prudent for us to hope for the best and prepare for the worst.

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It’s likely we’ll have a new president before this thing is settled, but we don’t know who that will be. Senator Elizabeth Warren isn’t going away anytime soon either. We could still be facing changes, even if the rule gets tossed out like yesterday’s rubbish. 

This is not an exhaustive list, but here are a few things you should consider doing as we wait to see how the story plays out:
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• Continue paying attention and learn. Don’t just bury your head in the sand. According to a recent survey, the majority of agents don’t know what to do… so they aren’t doing anything. If nothing else, at least keep up with what’s happening on our dedicated DOL/Fiduciary Rule page. Check it out here.
  
  
• Start thinking about potential comp changes. One of Obama and the DOL’s real pet peeves is heaped commissions. It may or may not happen soon, but it’s probably smart to give thought to what life would be like with less heaped and more leveled, or even fee-based, compensation.
  
  
• Tighten up your systems. One of the key requirements of the Best Interest Contract Exemption (BICE) is adherence to impartial conduct standards. Start establishing policies and procedures to prevent violations of those standards. It’s not a bad idea, and a little proof of effort will likely go a long way if the rule survives.
  
  
• Know the true value of your incentives. Sen. Warren, in particular, has a real bone to pick with our industry over incentives. She is simply hell-bent against them and refuses to consider them anything other than a guaranteed conflict of interest. Let me be clear: I’m not against incentives! I think they have real benefits. Just make sure the value is there. In the future, it may be easier to justify a little more commission than certain incentives. Also, what might your clients think if you’re suddenly forced to disclose such things?
  
  
• Maybe it’s time to finally go dual-licensed. If you’ve been thinking about moving to a partial or fully fee-based practice, maybe this is the reason you need to make the change. I still don’t believe it’s for everyone, nor do I see it being a requirement anytime soon... but there are several real benefits. Learn more about it by clicking here to register for our upcoming special web event.
  
  

Although I believe we’re going to dodge another regulatory bullet in the short term, who knows what will happen down the road. I think it’s still a good idea to put a little effort into preparing for the new fiduciary rule as currently scheduled.

Remember… anything can happen. Just ask Donald Trump.

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

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