Final DOL Fiduciary Regulations

[scagnt83]

Final DOL regs issued today. I cant find the full text yet but found some summaries and charts that the DOL published.

http://www.dol.gov/ebsa/pdf/conflict-of-interest-chart.pdf

Fact Sheet: Department of Labor Finalizes Rule to Address Conflicts of Interest in Retirement Advice, Saving Middle-Class Families Billions of Dollars Every Year


BICE (best interest contract exemption) only applies to Securities, not fixed products. Fixed Rate Annuities are addressed as a revision to PTE 84-24.

PTE 84-24 was a regulation that provided relief to advisors/agents who were already working under ERISA as a Fiduciary (which includes anyone in the IRA market). Essentially it allows commissions to be paid under ERISA for certain products and in certain situations.


I have not read the exact language yet, but info released by the DOL this morning states that:

in addition, the final amendment to PTE 84-24 provides a streamlined exemption for recommendations of "fixed rate annuity contracts"

And Dave Ramsey is ok as long as he does not give specific recommendations... he can educate, but not recommend or steer business towards any particular company or advisor.



Long story short, it seems like business as usual. Just a few extra forms to fill out. Pretty much as I originally predicted.

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CORRECTION

ONLY Traditional Fixed Rate Annuities apply to PTE 84-24.

Both Indexed and Variable Annuities DO fall under BICE.

This is covered under section 6 of the previous dol link I provided

The Department is also finalizing an amendment to an existing exemption, PTE 84-24, which provides relief for insurance agents and brokers, and insurance companies, to receive compensation for recommending fixed rate annuity contracts to plans and IRAs. As amended, PTE 84-24 contains increased safeguards for the protection of retirement investors. This exemption has more streamlined conditions than the Best Interest Contract Exemption, which will facilitate access by plans and IRAs to these relatively simple lifetime income products. More complex products, such as variable annuities and indexed annuities, will be able to be recommended by advisers and financial institutions under the terms of the Best Interest Contract Exemption. In response to comments received by the Department, the Best Interest Contract Exemption has been revised to facilitate compliance with the exemption by insurers and their agents, and additional guidance for insurers has been provided.

This means enhanced regulation for Qualified Indexed Annuity Sales.

BICE requires "no more than reasonable compensation"... which could exclude a good many compensation structures out there in the annuity world.How can a 10 year product that pays 8% comp, say its reasonable when there are 10 year products that pay 5% comp? It cant.

 

[Yagents]

Final DOL fiduciary rule issued | LifeHealthPro

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DOL fiduciary rule released | BenefitsPro

 

[walthamny]

I also read the new regulations as pretty much business as usual. Insurance carriers may slow down on advisor selling an annuity and then doing a 10% rollover into a new annuity with a different company. Under the old rules you could say, the new annuity has a new rider that client wants, now each of these rollovers would subject to BICE rules. Right now most carriers allow 100% of qualified funds to go into FIA's, they only limit Non qualified FIA's. They may put some rules/limits on qualified money too.

Business as usual overall. back to work now. I wonder if any of my carriers will now change products/commission.

 

[scagnt83]

I also read the new regulations as pretty much business as usual. Insurance carriers may slow down on advisor selling an annuity and then doing a 10% rollover into a new annuity with a different company. Under the old rules you could say, the new annuity has a new rider that client wants, now each of these rollovers would subject to BICE rules. Right now most carriers allow 100% of qualified funds to go into FIA's, they only limit Non qualified FIA's. They may put some rules/limits on qualified money too.

Business as usual overall. back to work now.

This article quotes the Labor Secretary as saying that BICE can be "as simple as a page or even a paragraph added to an existing document".

I doubt that the BICE language will be just a paragraph. But one extra page among the existing 15-30 pages is not a huge deal. Just extra cost to the consumer due to regulations... business as usual in this industry.

Final Fiduciary Rule Includes Requested Changes

 

[Gulfman]

I'm a beginner with annuities BUT i caught this comment in the article.

“However, any advice given before the contract is signed must be covered by the contract and also meet a ‘best interest standard’,” Perez said.

What the H*** is that supposed to mean???

 

[scagnt83]

I wonder if any of my carriers will now change products/commission.

They have already been making subtle changes. Not all changes recently are due to low rates imo. Carriers have been positioning themselves for this for the past couple of years or more imo.

Allianz lowered comp a while back. Over the years they have added more trail options with lower upfront comp. Yes agents like the options, but it also sets them up well from a regulatory standpoint.


AE just had a rate change that clearly steers the sale of their 10 year products towards the lowest comp 10y product they have.


AG has better rates on their 7 year product than they do their 10 year product. They also now have trail options.


GALIC has introduced more trail comp options, including a flat 1% option.


I think they have been slowly steering agents into being comfortable with the pending regulations by the evolving product design. Talks of these changes have been going on in government for a while now. Its not anything new or surprising for the carriers. They have been planning for this for years now.


In general I think we will see the IA industry go towards shorter surrenders and comp spread out over longer periods (especially for larger sales). Probably very few if any products that are over 10 years. Lower up front comp, with more trails on years 2+. Maybe even restricting which comp option you are allowed to take for sales over a certain breakpoint (like $200k). Not all of that is necessarily bad either imo.

 

[Tahoe Ray]

They have already been making subtle changes. Not all changes recently are due to low rates imo. Carriers have been positioning themselves for this for the past couple of years or more imo.

Allianz lowered comp a while back. Over the years they have added more trail options with lower upfront comp. Yes agents like the options, but it also sets them up well from a regulatory standpoint.

AE just had a rate change that clearly steers the sale of their 10 year products towards the lowest comp 10y product they have.

AG has better rates on their 7 year product than they do their 10 year product. They also now have trail options.

GALIC has introduced more trail comp options, including a flat 1% option.

In general I think we will see the IA industry go towards shorter surrenders and comp spread out over longer periods (especially for larger sales). Probably very few if any products that are over 10 years. Lower up front comp, with more trails on years 2+. Maybe even restricting which comp option you are allowed to take for sales over a certain breakpoint (like $200k). Not all of that is necessarily bad either imo.

The carriers want to be in the B/D space so they need to have these options anyway.

Athene, North American, and Forethought also have trail options, up to 1%, to add to the ones that you mentioned.

I know of a few carriers already looking at adding shorter surrender products too.

 

[Stephen]

I'm a beginner with annuities BUT i caught this comment in the article.

“However, any advice given before the contract is signed must be covered by the contract and also meet a ‘best interest standard’,” Perez said.

What the H*** is that supposed to mean???

My interpretation is that there is going to be some kind of contract or agreement signed before giving any advice, similar to the way that a Medicare agent must have an SOA signed before selling an MA plan, regardless if a transaction is made.

Full disclosure: I am not following this as closely as others, I am waiting on the lawyers to figure it out and pass it down.

EDIT: I have been debunked as better information came along.

 

[DHK]

I'm a beginner with annuities BUT i caught this comment in the article.

“However, any advice given before the contract is signed must be covered by the contract and also meet a ‘best interest standard’,” Perez said.

What the H*** is that supposed to mean???

That means that you can't be two-faced in your conduct and recommendations before and after signing the BICE. You need to always have the client's best interest in mind before giving any kind of advice, regardless of when the contract is signed.

 

[scagnt83]

I'm a beginner with annuities BUT i caught this comment in the article.

“However, any advice given before the contract is signed must be covered by the contract and also meet a ‘best interest standard’,” Perez said.

What the H*** is that supposed to mean???

My interpretation is that there is going to be some kind of contract or agreement signed before giving any advice, similar to the way that a Medicare agent must have an SOA signed before selling an MA plan, regardless if a transaction is made.

Full disclosure: I am not following this as closely as others, I am waiting on the lawyers to figure it out and pass it down.

The BICE agreement will just be part of the contract the client signs (application). What he was saying is that your comments to the client before the sale, cant contradict what you tell them at the point of sale or what you say on the suitability section of the contract.

This is what the labor secretary said about it:

“Industry practitioners said they were worried they would have to put the BIC in place from the very first second they were introduced to a potential new customer, even if that individual never ended up working with the firm or purchasing a service or product,” Perez explained. “Now we have confirmed that the contract can be papered at the same time as all the other paperwork associated with a new purchase or a new client relationship. It’s then and only then that you will have to execute the BIC, which can be as simple as a page or even a paragraph added to existing documentation.”