DOL rule change that impacted Annuity IRAs from employer plans

[scagnt83]

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.

That is a very good point. Most people dont take the time to calculate the true cost. Especially on an increasing account value.

But we are also talking about what is supposed to be a dynamically different relationship with the client.

The RIA is supposed to be actively managing the portfolio. They also should be giving detailed specialized advice that extends beyond just asset accumulation. Often helping with taxes, estate planning, risk management, etc.

The issue is that many do not take the comprehensive approach, and still charge a 1% wrap fee.

 

[scagnt83]

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.

You think? lol

Thank the CFP Board. They have been spending millions lobbying for these types of regs.

 

[scagnt83]

but one is seen as more fiduciary based & in best interest than the other.
.

I think the big issue for regulators is the differences in required disclosures and transparency.

Which could easily be fixed by creating more required disclosures and transparency for non fee based sales.

Disclose comp, disclose conflicts of interest, require alternatives to be compared, etc. Just like the fiduciary is required to do.

Heck, they could even have a state based form showing the differences in comp and features between "common" retirement investments.

 

[DHK]

No... the big issue for regulators are those who want to make a name for themselves as saying "we fixed this". (Ahem, Senator Warren, Ahem! cough, cough.)

All that's really required is to show how the product or investment is in the client's best interest and not just merely "suitable". A written strategy document is probably all that is needed, not just an illustration.

 

[Allen Trent]

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.

agree with your premise, but are you sure the average annuity across all products currently is paying the producer 6%? Many MYGA are 1.5-2.5% these days. Sure, some FIA & VA are higher than MYGA. FIA & VA/RILA would have to be paying an average commission of 7.5-8% on the 71% of the market they occupy to offset the 2% or so paid on MYGA/SPIA that is 27% of the marketplace LIMRA stats released last week for the $59B in sales for 4th Qtr 2020:

$ 8.4B RILA Variable Annuity (14.3%)
$19.2B Variable Annuity (32.8%)
$14.1B Fixed Index (24.1%)
$13.7B Fixed Deferred(MYGA) (23.4%)
$ 2.1B SPIA/DIA (3.6%)

 

[Allen Trent]

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.

I think that is already in the works as many producers dont like the large 1 time amount being disclosed on the compensation disclosures required by NAIC best interest disclosure.

 

[Allen Trent]

Which could easily be fixed by creating more required disclosures and transparency for non fee based sales.

i think we are already there. VA/RILA already have to supply that under the FINRA/SEC best interest & most states have already adopted the NAIC Best interest for Annuity that requires the comp disclosure, conflicts of interest & "why the product is being recommended"...................which then circles me back to the DOL issue on ERISA to IRA rollover. how do you state a required agent recommendation if you then violate the DOL. Do you just say "they called me, I told them what my product does & I have no idea where their money is coming from" after having to fill out 2 pages of Consumer Asset profile pages required by NAIC best interest regs in most states showing where all their assets are

This is why I started this thread as the state adopted NAIC best interest regs appear to force advice/recommendation that triggers fiduciary status under the federal DOL item on ERISA to IRA/etc

 

[Allen Trent]

directly from DOL website, interesting 5-8 questions & examples the DOL gives on how fees work, etc: Choosing the Right Person to Give You Investment Advice: Information for Investors in Retirement Plans and Individual Retirement Accounts | U.S. Department of Labor

 

[DayTimer]

directly from DOL website, interesting 5-8 questions & examples the DOL gives on how fees work, etc: Choosing the Right Person to Give You Investment Advice: Information for Investors in Retirement Plans and Individual Retirement Accounts | U.S. Department of Labor

My feeling is this is going to end up with even more Americans ill prepared fro retirement, inadequately protected, and without sufficient income as longevity risk continues to rise.

 

[DHK]

And we'll see more RIAs trying to recruit based on the idea that "You need a Series 65 and an RIA to be a fiduciary or your business is at risk" garbage.

Granted, I'm with one, but that wasn't the reason why I did it.