DOL Panel: Harmonize Or Sing The Blues

PALM BEACH, Fla. - The financial executives speaking about the fiduciary standard on an Insured Retirement Institute (IRI) panel joined in what could be considered three-part harmony.

They said that the best future for annuities and investing is in agencies getting together to create one standard now that the Department of Labor's fiduciary rule has been hobbled by the Trump administration.

In fact, a harmonized fiduciary standard has been a recurring theme in the run-up to and throughout the opening of IRI's 2017 annual meeting.

The association, among others, is looking primarily to the Securities and Exchange Commission to step in with rules that would cross insurance and financial lines. The SEC was empowered by the Dodd-Frank financial reform law to consider building such a regulation.

A substantial part of the DOL rule has been put on hold until July 2019. The department will be reconsidering the rule during that period, as directed by an order from President Donald Trump.

The panelists - Bill Lowe of Sammons Retirement Solutions, Ben Huneke of Morgan Stanley and Tonia Bottoms of Pershing - recommended that a push for a harmonized standard could help reverse what has been a losing public relations battle for the industry.

"It's a sound bite world," said Lowe, president of Sammons. "We lost the sound bite."

The DOL won the first battle in the fiduciary war with the argument that the rule was in the best interest of clients and that it put client interest ahead of advisors.

Huneke, managing director and head of investment services at Morgan Stanley, said the DOL was able to wave the banner with the best interest standard and transparency.

"They took the high ground," he said.

One of the arguments against the rule was that it did not help clarify issues but confused clients. Under the rule, advisors have multiple layers of regulation and compensation regimes. That's especially true in states like Nevada that have pushed ahead with their own fiduciary standard.

"It's confusing for the advisor," Lowe said of having to follow the fiduciary rule for some money and the suitability standard for others, among other regulations. "But it's even more confusing for the client in terms of what kind of service can I expect and what are the rules regulating each one of these accounts."

But panelists agreed that the financial and insurance industries did not score high points with the public by arguing those nuances of the DOL rule.

The industry should be "wildly" supportive of a harmonized standard, Lowe said.

That's important because what existed before the DOL's rule was not exactly idyllic. Bottoms reminded the audience of the five-part test to determine if an advisor should be considered a fiduciary.

"We would end up living with that again," said Bottoms, who is managing director and senior managing counsel at Pershing. "This shines the light that we needed to do something about that."

Getting ahead of the next evolution of financial rules is key, the panel said.

One predicted solution is "unbundling" insurance and finance so they are not locked in their separate spheres.

Huneke said the push toward regulation should wake up the industry to take a serious look at consumer issues and devise new, cogent approaches.

"The (DOL) rule is a symptom of what's happening in the country, not a cause," he said. "It didn't come down from Mars."

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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