DOL Plans On Fiduciary Definition Captivate LIMRA Audiences

TAMPA--Opinions are mixed here on whether the Department of Labor will pursue a strict fiduciary standard that would rope in retirement plan sales of insurance products.

Officially, it is expected that the DOL will deliver a new fiduciary rule definition any day. Those plans were laid out in a previous department regulatory agenda.

“Our expectation is they're going to want to move in the direction they did in 2016 and find a way to make it happen,” said Jim Szostek, vice president and deputy, retirement security for the American Council of Life Insurers.

Szostek served on a panel today at the 2022 Life Insurance Conference. He referenced the 2016 fiduciary rule enacted under President Barack Obama, which was later tossed out by an appeals court.

On Tuesday, Hannover Re CEO Peter Schaefer delighted attendees with a skeptical view of DOL plans.

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Meanwhile, the DOL already faces two lawsuits seeking to toss out the Investment Advice Rule, which took effect in February.

Written during the Trump administration and allowed to stand by the Biden DOL, the Investment Advice Rule would hamper sales of retirement products, advisors say. The Federation of Americans for Consumer Choice and the American Securities Association filed separate lawsuits in February.

The lawsuits were no-lose propositions, Szostek said today.

"If they lose, it’s status quo. If they win it’s not, so it’s kind of a no-lose situation," he said.
"Some people thought it might spur the DOL to go further than they planned to go. Secretary Walsh, we don’t know what his plans are yet."

Two-Part Rule

The Investment Advice Rule has two main parts: a new prohibited transaction exemption allowing advisors to provide conflicted advice for commissions; and a reinstatement of the "five-part test" from 1975 to determine what constitutes investment advice.

To execute a prohibited transaction under the new rules, there are very specific disclosures about any conflicts that must be made, along with detailed evidence that the sale is in the best interest of the client.

Both lawsuits claim the DOL overstepped its authority in writing the rule. For example, DOL guidance indicates that first-time advice to transfer retirement assets out of a federally regulated plan can constitute fiduciary advice, which the rule subjects to a strict standard of care. Issued as a series of FAQs, the guidance essentially created new rules, the ASA claimed in its lawsuit.

Meanwhile, more than three dozen organizations sent the Department of Labor a letter last month demanding an investment rule that would eliminate the exemptions that have allowed the sale of commission-based products with retirement money.

“The current regulatory regime with its five-part definition of ‘fiduciary advice’ makes it easy for retirement investment advice providers to avoid fiduciary responsibility even when retirement savers are relying on them as trusted advisers,” according to the letter, signed by consumer groups such as Consumer Federation of America and AARP, along with interest groups and unions such as the Airline Pilots Association International.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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