Confused Over DOL Delay? AAP Provides a Reader’s Digest Recap

Commentary

Well there is no doubt we’ve had a rough ride over the past two days of confusing news reports regarding the OMB decision and the DOL’s release of a proposed 60-day delay with two separate comment periods.

Americans for Annuity Protection (AAP) has been sending you the news-breaking reports we receive from our most reliable industry sources.

But if you’re like most advisors, intermediaries and industry personnel, you may have been too busy WORKING to read much more than headlines and confusing summaries. It’s not that the reporting, but the rulemaking process and government’s language can be very confusing – making it hard to decipher and put into terms we can understand. AAP will attempt to break it down for you and make some sense out of it all.

A Roundup

WHERE WE ARE TODAY: The DOL proposed a “Delay Rule.” A “Delay Rule” is simply a new Rule to delay an existing Rule. The Department proposes to delay the applicability date of the DOL Best Interest Rule for 60 days.

TRANSLATION: The first compliance date would be June 9th and not April 10th - with no change to the final compliance date of Jan. 1, 2018 for full compliance.

WHAT THAT MEANS: If the proposed delay is finalized it will require compliance with all Impartial Conduct Standards on June 9th. The impartial conduct requirements impact advisors making recommendations to take any action with qualified plan funds. Simply stated, impartial conduct standards are:

1. Acting with care, skill and prudence in assessing your client’s needs, risk tolerance and time horizon
2. Putting your client’s interest first - ahead of your own
3. Getting paid reasonable compensation
4. Disclosing material conflicts of interest
5. Making no misleading statements

However, compliance with many of the disclosures, supervision policies and procedures and VERY IMPORTANTLY executing a Best Interest Contract will remain as outlined in the actual Rule and the supplemental FAQ issued last October. That date again is: no later than Jan. 1, 2018.

A good explanation of the Department’s rationale for the modest 60-day delay was provided by one of my go-to fiduciary sources, Nevil Adams, JD and editor in chief of NAPA Net. He reports that the Department of Labor says absent an extension, if the examination prompts the Department to propose rescinding or revising the rule, affected parties might face two major changes in the regulatory environment rather than one.

“This proposed 60-day extension of the applicability date aims to guard against this risk,” the Labor Department stated, going on to say that the extension makes it possible for them to take additional steps – completing its examination, implementing any necessary additional extension(s) and proposing and implementing a revocation or revision of the rule – without the rule becoming applicable beforehand.

WHAT HAPPENS NEXT: The proposal calls for TWO comment periods running in tandem with each other. The first is a 15-day comment period for the delay itself. The 15 days start when the Rule is published in the Federal Register which is reported to be today.

So essentially that puts us to mid-March, at which time the DOL reviews the comments and sends a FINAL Rule for Delay to the OMB.

The OMB then reviews and sends its decision back to the DOL. Given the DOL’s desire not to impose two “major changes” on the industry, it is a pretty safe bet the delay will be at least 60 days.

Looking at Costs

As part of its comment-seeking, the Labor Department specifically noted a desire to receive data on compliance activities already undertaken (sunk costs), and the potential change in start-up costs that would result from a delay in the applicability date. The Labor Department notes that, beyond start-up costs, the delay “would likely relieve the industry of relevant day-to-day compliance burdens.”

Comments were also requested as to whether the “benefits of the proposed 60-day delay, including the potential reduction in transition costs should the Department ultimately revise or rescind the final rule, justify its costs, including the potential losses to affected retirement investors.”

In addition, comments are requested on whether it should “delay applicability of all, or only part, of the final rule’s provisions and exemption conditions.” As an example, it cited that they could delay things like notice and disclosure provisions, but permit the Impartial Conduct Standards set forth in the exemptions to become applicable on April 10, as well as comments on whether a different delay period would best serve the interests of investors and the industry.

Upon completion of its examination, the Department may decide to allow the final rule and PTEs to become applicable, issue a further extension of the applicability date, propose to withdraw the rule, or propose amendments to the rule and/or the PTEs.

The second comment period (running concurrently with the first) is for the broader purpose of examining the final rule and exemptions in response to the President’s Memorandum, generally and with respect to specific questions identified in the proposal. These comments are due on or before 45 days following publication in the Federal Register or mid-April.

AAP will be taking a deeper look at the proposals and the areas where the Department is seeking comments to impress upon them our steadfast belief that the existing Rule is flawed beyond repair with its confusing requirements placed on annuities in general and conflicting requirements place on fixed indexed annuities versus fixed rate annuities.

We encourage anyone with views on this topic and suggestions for comments to send them to [email protected].

What to do TODAY?

Prepare your business for a best interest standard. You can’t control the unknown but you can plan for the known. Or as William Shakespeare put it in “Julius Caesar”:

If you have a favorable opportunity to do something, do it, or you will lose your chance!

Right now, the favorable opportunity is to show your client’s you already put their interest first and prove it with a business model and system to do so.

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 [email protected].

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