DOL rule change that impacted Annuity IRAs from employer plans

[Allen Trent]

anyone seeing any good agent education pieces on how to stay compliant & not fall into the "recommendation/advice" realm & stay in the education only realm as to not be considered a fiduciary under the DOL regs that are active currently, even on fixed products only?

New Fiduciary Advice Exemption: PTE 2020-02 Improving Investment Advice for Workers & Retirees Frequently Asked Questions | U.S. Department of Labor

how does a insurance licensed only agent not enter into an inadvertent fiduciary role they are not licensed to give advice on (employer provided plan invested in securities) before it transitions to an IRA Annuity or some other product. many of the requirements of a fiduciary would make you obtain any & all plan sponsor documents, costs, investment options & then all the legal ways an employer plan can have better creditor protections, loans, waiver of 10% IRS penalty at an earlier age, etc.

 

[DHK]

how does a insurance licensed only agent not enter into an inadvertent fiduciary role they are not licensed to give advice on (employer provided plan invested in securities) before it transitions to an IRA Annuity or some other product.

Easy. Talk about the general nature of investments without talking about specific securities in the plan, discuss the tax code relative to IRS regulated retirement plans, liquidity provisions, and if the client wants a given lifetime income, they need to fund the annuity with X dollars for a given benefit.

Agreed on your other points regarding costs, investment options, loans against balance, and the age 55 rule, etc.

Never give any kind of risk assessment on their current plan and don't give any buy, sell, holding, individual security analysis, or asset allocation analysis.


Employer plans do NOT have "better creditor protections" if you have plans to spend the money. I had a case with a guy who had an IRA to rollover. Once the transfer was requested, the county put a lien on it for past due child support. He couldn't move the money without authorizing the repayment of that amount. (He did authorize it and it so happened that it was going to a 'bonus variable annuity', so the VA replenished the same amount that he paid in child support.)

The county couldn't get at the money, but he couldn't touch the money either. So creditor protection *may* be an oversold feature and I'd point this part out based on my past professional experience.

 

[scagnt83]

Employer plans do NOT have "better creditor protections" if you have plans to spend the money. I had a case with a guy who had an IRA to rollover. Once the transfer was requested, the county put a lien on it for past due child support. He couldn't move the money without authorizing the repayment of that amount. (He did authorize it and it so happened that it was going to a 'bonus variable annuity', so the VA replenished the same amount that he paid in child support.)

The county couldn't get at the money, but he couldn't touch the money either. So creditor protection *may* be an oversold feature and I'd point this part out based on my past professional experience.

You said Employer Plan but also said it was an IRA. Was it a SIMPLE Plan?

 

[DHK]

I apologize. It was a traditional IRA being transferred to an annuity IRA.

I should've just said qualified plans and similar plans to them, however, I don't have direct experience on a lien against a true qualified plan.

 

[scagnt83]

I apologize. It was a traditional IRA being transferred to an annuity IRA.

I should've just said qualified plans and similar plans to them, however, I don't have direct experience on a lien against a true qualified plan.

Just curious. To my knowledge, any Qualified Plan can have a Child Support or Alimony Lein against it. Its the one universal exception to the creditor protection for any investment or retirement product.

 

[Allen Trent]

Easy. Talk about the general nature of investments without talking about specific securities in the plan, discuss the tax code relative to IRS regulated retirement plans, liquidity provisions, and if the client wants a given lifetime income, they need to fund the annuity with X dollars for a given benefit.

I hope you are right, but that is not how the FAQ Are being written by DOL & the DOL suggested questions for consumers to ask appear to he doing. From what I am reading, rolling over an Erisa plan to an IRA could put you in a Fiduciary capacity for all future interactions with the client. Wonder if reps with only a life license to sell fixed Annuities will have E&O for Fiduciary responsibility for scope that licenses are not help to meet the fiduciary standard

DOL arms investors with questions that will catch some advisers off guard

DOL Releases FAQs on PTE 2020-02, Foreshadows Future Activity on Investment Advice | JD Supra

 

[DHK]

1. Rollover recommendations

That's an easy one. DON'T make a recommendation. Offer the client a choice with full disclosure of all the pros & cons of staying versus what you're proposing.

2. Written acknowledgement of fiduciary status

I want a written acknowledgement of fiduciary status of our United States Congress on how they spend taxpayer money too before they believe that I have to be held to a higher standard than them.

3. Conflict Mitigation

I'll bring up the conflict induced by the DOL: Why is the DOL so involved on all this stuff on YOUR retirement accounts? I'll tell you: they aren't yours. They see themselves as the author and arranger of your account and they want to monitor and regulate every piece of our lives. There's the conflict. Want to fix it? I can help you fix it.

4. Insurance Companies

I don't care about "incentives". And I don't want my IMO to be my "supervisory agent" either. Although for 3rd party comparison tools, I bet Sheryl Moore's WINK will get a huge amount of business for a service like that.

5. DOL Enforcement of compliance

Just get the client to sign off on full, simple to understand disclosures because it's THEIR PLAN.

6. DOL's future plans:

I want to siphon as many retirement accounts away from DOL/ERISA oversight as I can. Those are my future plans because I abhor this government overreach. I understand it; I hate it.


This are my thoughts. They probably won't fly in reality, but this is just assinine.

 

[Allen Trent]

this is just assinine

100%. It as almost as if the regs & FAQ are being written that only fee based advisors could meet the minimum standards or appearance of standards. But no one ever wants to talk about a 500k fee based account charging 70k to 100k over a 20 yr relationship, but a A share mutual fund might have had a 1 time sales load of 15-20k or an Annuity a commission of 15-20k one time & not deducted from account values.......but one is seen as more fiduciary based & in best interest than the other.

Most states have already changed fixed annuity from Suitability standard to NAIC Best interest, but this DOL item on ERISA plan to rollovers could be very, very interesting to see how it plays out.

 

[DayTimer]

But no one ever wants to talk about a 500k fee based account charging 70k to 100k over a 20 yr relationship, but a A share mutual fund might have had a 1 time sales load of 15-20k or an Annuity a commission of 15-20k one time & not deducted from account values.......but one is seen as more fiduciary based & in best interest than the other.

These fee based advisors ought to be required to do a "truth in lending" type projection of their fees, charges, commissions over a 20 year period. That would really be in the consumer's best interest. Unfortunately most consumers don't get this information until they are 10 years into such a fee based relationship and we go back and forensically calculate their advisor's end up to that point.

 

[scagnt83]

I do see both sides of the argument. The issue is that annuity comp is so high first year.

Take that $500k account. The RIA makes $5k the first year. The insurance agent makes $30k the first year.

Sure the RIA makes more over the long run.... but that is a HUGE difference in first year comp.

I am not saying its unfair or anything. We all know the annuity business model is not like the RIA business model. It takes a lot of work and often a lot of ad money to get a $500k annuity sale. But that large of a difference is certainly a temptation to some.

One solution would be to make it mandatory to spread out comp on large annuity sales (or MF sales) over a 2 or 3 year period. Large meaning $500k or over.