The Department of Labor has a lot of work to do, and precious little time to do it, to turn its investment advice rule into a regulation that works for everyone in the insurance world.
Even then, the rule stands a good chance of ending up back in a courtroom. A panel hosted by the Insured Retirement Institute agreed on both of these points Wednesday during the trade association's Supply Chain Summit session.
The rule would replace the controversial fiduciary rule published by the Obama administration. The Trump replacement has two main parts: a new 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.
Unfortunately, the rule has significant problems that would introduce new impacts on the insurance industry, said Bradford P. Campbell, partner with Faegre Drinker Biddle & Reath. One issue stems from the DOL's attempt to write rules that harmonize with the Securities and Exchange Commission's Regulation Best Interest.
"Unfortunately for the insurance industry, they modeled their [exemption] on securities law on Regulation Best Interest, and while that fits somewhat well for insurance transactions that involve securities variable products, it doesn't fit at all for ... selling fixed annuities from an independent insurance agent regulated under state law," Campbell explained.
The DOL held a public hearing on its investment advice rule two weeks ago and its next step is to publish a final rule in the Federal Register. Many in the industry say the DOL rule could threaten the independent insurance agent.
Time An Issue
The problem for the DOL is one of time. There might not be enough of it to do a major rewrite, and all of the analysis and legal testing that goes along with that. Ideally, the agency would need to publish its final rule by Nov. 1 at the latest, Campbell said.
With President Donald Trump trailing challenger Joe Biden in the polls, the DOL will want to have its rule on the books, he noted.
"Basically speaking, if a rule has been on the books for more than 60 days, to displace it, you have to do new notice and comment rulemaking," explained Campbell, who headed up the Employee Benefits Security Administration under President George W. Bush. "If a rule has been on the books less than 60 days, an incoming administration who dislikes the policy could fairly easily wipe it away."
The courts probably haven't issued their final ruling on the DOL's attempts to regulate the sale of financial products with retirement account dollars, the panel agreed. An appeals court tossed out the Obama fiduciary rule in 2018, which gave the DOL another shot at rulemaking.
"I would not be surprised if in a Biden administration, and if the Department of Labor pursues the path that it's headed, I would not be surprised to see it litigated again," said Dean Cameron, Idaho insurance commissioner. "I wouldn't be surprised to see the independent agents file suit."
While Joe Biden might be a reasonable centrist, Cameron said, Sen. Elizabeth Warren, D-Mass., has his ear. Warren is highly critical of financial services and might have an opportunity to influence Biden's policies in these areas, he added.
"She didn't just endorse Joe Biden for the fun of it," Cameron said. "She was able to negotiate whatever issues are important to her be considered by the president. And certainly this is one of those issues."
The bottom line is that a restrictive rule from the DOL will result is less product choices and less financial advice for people who need it most, the panel agree. It already happened after the 2016 Obama administration rule, Campbell said.
As an agent in his pre-regulator life, Cameron recalled selling policies and helping small-town workers get their retirement plans off the ground. Most were people of little means, but proper planning gave them a chance to retire with dignity, he said.
"I'll never forget the lady that I sat with after her husband had passed away, and he was uninsurable," Cameron said. "But every month he had come in and made deposits into his annuities. And she had no idea and she was taken care of through the end of her days. And then there was even a little bit of money passed on to their children.
"That's the kind of influence and input that you can have on individuals as you plan for their retirement."
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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