The DOL Will Show Its Real Intent With The Fiduciary Rule

Independent marketing organizations aren’t letting the Department of Labor kick them out of the retirement fund market – well, six of them, at least.

They are applying to become financial institutions in the eyes of the DOL so that they can oversee sales affecting retirement money. When the DOL published its final version of its conflict of interest rule in April, not only were fixed indexed annuities moved into the best interest contract exemption (BICE) but IMOs also were not on the list of organizations that can be considered a financial institution.

That latter part is important because exemption allows agents and advisors to collect third-party payments, such as commission, when selling variable or fixed indexed annuities. But a financial institution would be required to sign the BICE with a client. Insurance companies would be considered financial institutions, but execs have already said they did not want their company to sign such onto that liability with an independent agent that they can’t control or monitor very well.

So, some IMOs are stepping into the void by applying for the status. It is far from easy – the app itself is 20 pages. Nor is it a quick process. One of the applicants told us that they hope to hear about it by the end of the year. Considering that the deadline to implement the rule is in April, that does not give anyone the opportunity to construct a system to work with agents as the financial institution or structure the business without the status.

Then, on top of that, I heard from a few people that they didn’t think the DOL would ever allow IMOs in that role. That might be a bit of cynicism but would make sense, considering the DOL’s war on commissioned sales. Those staffers don’t want them, it’s clear. That is why the regulation is called the conflict of interest rule.

If the DOL rejects the applications, the department will be showing that they don’t trust consumers to make their own decisions. The IMOs were required to show how they would live up to the rule. A rejection would be tantamount to calling IMOs untrustworthy. That doesn’t speak well about how they would handle other aspects of the rule.

After all, this is the department that removed fixed indexed annuities from the PTE 84-24 and threw them into the BICE in the final rule without warning. So, after years of rule-making and many months of commenting, the DOL changed the rule substantially without assessing the impact or allowing comment.

That seems careless or arrogant. Insurance industry representatives meeting with DOL staffers had reported that the staffers said they made a mistake in not realizing the FIAs were the same thing as variable annuities (VAs) and should be treated the same. They knew about the court and congressional decisions in 2010 to treat FIAs as insurance rather than securities, such as VAs.

If the DOL is successful in destroying the independent agent channel and consumers of the future are not retiring with a secure nest egg, where do we go to get that industry back? Is there a judge who can grant that?

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 [email protected]

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