Significant Transition Period For Compensation Changes

ORLANDO -- Compensation changes have long been anticipated since the Department of Labor released its controversial draft fiduciary rule in April 2015.

But as we get closer to the rule applicability date (June 9), agent compensation changes remain out of focus. The conditions barring things such as differential compensation and incentive-based compensation don't kick in until Jan. 1, 2018, said Thomas Roberts, principal with the Groom Law Group.

"We're looking at a significant transition period," Roberts said.

Roberts spoke today during a closing session at the LIMRA LOMA Secure Retirement Institute and SOA 2017 Retirement Industry Conference.

Many client firms want to know what they need to do regarding compensation in the short term, he said.

"You are free to chart your own path to compliance with the impartial conduct standards during the transition period," Roberts said, repeating the advice he gives.

Incremental, prospective payout grids are not necessarily incompatible with the DOL rule's Best Interest Contract Exemption, Roberts explained. "Disproportionate ratcheting" will be, he added.

"It is really, really difficult to comply with these conditions," he said. "No question about it."

"Reasonable compensation" is the toughest target to hit, an audience member said. It is tough for the legal team as well, Roberts responded.

"We know that it is generally a market-based standard," he said. "So is what the firm its paying advisors in line with the market?"

Reasonable comp is likely to be an area ripe for litigation once the rule is in place, added Jon Breyfogle, a principal with Groom.

The confirmation of Labor Secretary Alexander Acosta this morning is a key development for the future of the fiduciary rule, Breyfogle said.

"I think that's a critical point as far as what's possible going forward," he said.

Promulgated by the Obama administration, the fiduciary rule establishes a best interest standard of care for anyone working with retirement dollars. Most significantly, it allows for class-action litigation for conflicted financial advice.

The harsher exemptions under the rule are likely to be amended by President Donald Trump's DOL, Breyfogle said.

But many firms already have adopted fee-based or level-fee products accompanied by new compensation strategies.

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].

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