DOL Rule Or Not, Insurance Industry Needs To Do Better

Well, we know one thing that financial advisors dislike more than Hillary Clinton – the Department of Labor’s fiduciary rule.

In a Financial Services Institute survey of advisors, 86 percent wanted the rule to be repealed by Donald Trump and 76 percent said they voted for him to be president. FSI is one of the organizations suing the DOL over the rule.

They certainly have their supporters within Trump’s circle and his cabinet appointments. Rep. Lou Barletta, who said he was offered the labor secretary job, has opposed the rule, as reported by Senior Editor John Hilton.

Barletta voted for a bill in April to stop the rule. The legislation passed the House of Representatives and the Senate approved a similar measure, but it was vetoed by President Barack Obama.

Four lawsuits are pending to stop the rule, but they have failed so far to secure an injunction, which would be the best outcome for agents and advisors who oppose it. Otherwise, the suits would go to trial and decisions would likely come after the April 10 effective date.

If no injunction is forthcoming, the rule could be delayed before April 10. The key is whether a new labor secretary is installed before then. The process for the last confirmation isn’t encouraging. Current Secretary Thomas Perez was nominated in March 2013 and was not confirmed until July. But that followed a re-election year with an Obama-appointed secretary already in office.

A more accurate comparison would be when Obama assembled his first cabinet. He announced Hilda Solis for the job on Dec. 18, 2008, and she had her Senate hearing on Jan. 8, even before Obama was inaugurated. But issues brought up by Republicans delayed confirmation until Feb. 24.

So, even with a confirmation that featured several stumbling blocks, it was finished long before April. Not only that, but Trump would be able to nominate an acting secretary in the meantime, just as Obama did when his nominee faced delay.

Will the rule just get pushed aside as other large issues push to the fore? Maybe, but a lot of prominent Republicans from House Speaker Paul Ryan on down have vowed its demise. Considering all that, the rule’s chances are looking about as good as Trump naming Rosie O’Donnell for Secretary of State. But, hey, who would have thought that Mitt Romney would be in the running?

Agents and advisors who were unsure how to deal with the rule, are probably safe breathing a sigh of relief. Critics who argue that commission-based advisors simply have to look out for clients’ best interest are unaware of the rule’s many landmines and are insulting the majority of advisors who are legitimately looking out for their middle market clients.

The real intent of this rule and its backers has been to phase out commission-based (aka “conflicted”) sales.

Anyway, if the rule is delayed and turned into something more manageable and effective, the experience has its lessons.

1. Commissions can’t drive sales. Marketing organizations have been cleaning up the business for several years. They focus on understanding clients and serving those needs with a variety of products that suit the client. But some marketing organizations still compete on commissions and bonuses. A few still train agents to reel in prospects and sell them one particular high-commission product. If that continues unabated, we can expect regulation under any presidential administration.
2. The annuity business needs better PR. Annuities are still a dirty word not only with a majority of consumers, but also with financial advisors and other professionals. (Some of that is for competitive reasons, but a lot of it has to do with the whole used-car thing going on with salespeople.) Emphasize and reinforce better business practices and then tell everybody about it. Loud. Often.
3. The annuity business needs better PR! I’m saying it again because this is a big problem. Americans are stumbling into a retirement crisis whose dimensions will not be appreciated until many millions of hospital beds are filled with people whose unexpected longevity and medical expenses drained every penny from the legacy intended for succeeding generations. Annuities are the only way that they can depend on having an income in those years.

The public needs to know that last point. And it is up to the insurance industry to earn America’s trust to deliver the security wrapped in the promise.

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at smorelli@insurancenewsnet.com.

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