Why a Delay to the DOL Rule is a Critical First Step

Commentary

Americans for Annuity Protection (AAP) strongly supports the U.S. Department of Labor proposal to delay the DOL Fiduciary Rule applicability date of April 10.
AAP submitted comments to the DOL to demonstrate this support and its rationale regarding why the delay is necessary. AAP’s petition collected almost 1,500 signatures, which were submitted to the Department as well.

AAP submitted its comments to address only the proposed delay in the applicability date of the Fiduciary Rule. AAP intends to submit comments separately regarding the demerits of the Fiduciary Rule and the questions the President's memorandum raised about the Rule.

Some advisors and other followers of AAP questioned why we didn’t request a repeal. Since this Request for Comments was related to the issue of delay, it is always better to keep comments narrow and specific to the questions the regulating agency raises and not wander off course.

The second comment period, ending in April 17, asks for comments to address the repeal or revise questions. AAP will use that opportunity to address the need for repeal because of the Rule’s bifurcated and harmful approach to qualified money versus non-qualified and its strangulation of the IRA rollover market.

AAP believes the delay is critical to provide the Department the necessary time to; 1) effectively carry out the President's direction to re-analyze the Rule’s impact on retirement savers, and 2) to avoid unnecessary and continued disruption to the annuity marketplace. This disruption continues unabated because of the uncertainty and confusion surrounding the proper interpretation and application of the requirements placed on annuities.

Annuity producers and advisors, independent marketing organizations and insurance companies have been working around the clock to understand, interpret, implement and communicate the conflicting compliance and disclosure requirements that exist between the 84-24 and Best Interest Contract (BIC) exemptions.

No Guidance

As most of you know, the 84-24 and BIC exemptions apply separately and disparately to fixed rate annuities, fixed indexed annuities and variable annuities. Unfortunately, the requests for further clarification and guidance for the independent insurance channel has not been forthcoming from the Department since the initial FAQ published last October.

Without additional guidance, the industry is forced to guess at compliance and disclosure requirements, creating an environment that will not be standardized or uniform, adding more confusion for consumers and disarray in the IRA marketplace. This confusion will be met with delay and postponement of saving decisions and activities.

With today’s crisis in retirement preparedness, delaying savings and retirement decisions does not move the ball forward for Americans; nor does it “empower Americans to make their own financial decisions,” a goal highlighted by the President.

The President’s directive will allow the Department to conduct statistically sound and quantitative research that effectively evaluates the savings impact this rule creates for annuity consumers. The delay is essential to dependably and thoroughly complete the analysis.

The Department commented in its original release of the proposed Rule that the “research has shown that disclaimers are ineffective in alerting retail investors to the potential costs imposed by conflicts of interest.” Yet the Department has constructed a Rule that does just that.

The Rule, as written, adds dozens of pages of disclaimers and disclosures for consumers. When combined with the disclaimers and disclosures already imposed by state insurance regulation, it creates complexity. Pouring over page after page of legal documents drafted and constructed to best protect the industry does not help the consumer.

Additionally, the Department openly and publicly admitted the flaws in its analysis regarding the supposed misbehavior by insurance agents and acknowledged that “direct empirical evidence about the frequency of such misbehavior is limited.” Without direct empirical evidence, how can it be called an “analysis?” Perhaps the Department’s exploration of the impact of the Rule is best called an “opinion” based on selective information and anecdotal commentary.

Do not forget a quantifiable and reliable analysis probing both the economic value and economic deterrents of proposed regulation is the fundamental obligation of the Administrative Procedures Act.
Lastly, the Department’s “research” and references to “various media reports” regarding fixed indexed annuities to support their treatment under the Rule is highly questionable. The Department limited its references explaining their “research” to two alerts.

Both were written by regulators and regulating entities competing directly with the fixed indexed annuity marketplace and “various media reports” no doubt written by entities whose advertising is supported by annuity competitors.

This reliance on cherry picked information is a significant conflict of interest by a government entity charged with providing equal treatment to all Americans.
These obvious analysis flaws in the research methodology and the biased conclusions supports AAP’s request for a delay and for a statistically significant analysis the President is requesting.

Looking at Potential Harm

As the President’s memorandum notes, the Department is charged to determine if the Rule “may adversely affect the ability of Americans to gain access to retirement information and financial advice; has harmed or is likely to harm investors due to a reduction of Americans' access to certain retirement savings offerings, retirement product structures, retirement savings information, or related financial advice; and, is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services.”

As a practical matter, the Department of Labor will need a significant amount of time - at the very least through the June 9, 2017 date it proposes - to conduct the review the President directed and determine upon the issuance of a notice of proposed rulemaking to revoke or modify the Fiduciary Rule.

Absent a delay of the applicability date of the Fiduciary Rule, the financial services industry must comply with the rule by April 10, 2017. Given the Department’s flawed analysis, there is a substantial possibility that the Department will decide it needs to revoke or modify the Rule.

That would necessitate another round of compliance activity by the insurance industry, either to unwind its previous compliance process, or to revise it to meet the modified requirements of yet another version of a Fiduciary Rule.

This undo-redo process does not help Americans save for retirement and why it is CRITICAL we have a delay first and repeal second.

Kim O’Brien is a 35-year veteran of the insurance industry specializing in guaranteed annuities and life insurance.  She is the current CEO of Americans for Annuity Protection and Founder of AssessBEST, Inc., a sales and compliance software system.  Visit www.AAPnow.com or www.AssessBEST.com for more information. Contact Kim at kobrien@innfeedback.com.

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