While the final fiduciary rule contains plenty of concessions by the Department of Labor, one significant change is expected to hurt fixed indexed annuity sales.
The DOL opted to toughen the rule by adding FIAs to the Best Interest Contract Exemption, along with variable annuities.
'While this had been discussed at various times, we most recently heard from industry players that it wasn't expected," said analyst Keefe, Bruyette and Woods in a note on the rule this morning.
Indexed annuities are a high-commission product like VAs, and 60-65 percent of industry sales are within qualified retirement plans, KBW said.
"We expect indexed annuity sales to be negatively impacted as result," the analyst added.
The DOL fully explains the changes in this fact sheet.
Other significant changes in the rule as it was announced by the DOL this morning include:
* A delay in when the BIC must be signed. Advisors worried that requiring the signed contract prior to any discussion of products would turn off potential clients. The DOL agreed, and decided that the BIC can be signed as part of transaction execution documents, although the fiduciary standard applies to all discussions from the start.
* Proprietary products. Advisors and firms were greatly concerned that sales of proprietary products would be banned by the DOL rule. The final rule clarified that proprietary product sales are appropriate as long as the advisor acts as a fiduciary.
* Grandfathering. The final rule clarifies that existing transactions may continue on a commission basis. Transactions executed after the "applicability date," one year from publication, will be subject to the new fiduciary standards.
* Implementation. The DOL extended the first phase of implementation to one year after publication of the final rule. In addition, the department adopted a “phased” implementation approach for the BIC and PTEs to give firms much-needed time to comply. In particular, the full disclosure provisions, the policies and procedures requirements, and the contract requirement only go into full effect on January 1, 2018.
* Education and asset allocation. The department clarified what constitutes allowed "education" in the final rule. In addition, the DOL revised the final rule to allow asset allocation models and interactive investment materials to identify specific investment alternatives under ERISA-covered and other plans if certain conditions are met.
* Disclosures. Many advisors testified that required disclosures were burdensome and costly. The DOL responded by eliminating some disclosures in the final rule. In particular, requirements to include projections, as well as the annual disclosure requirement, have been entirely eliminated.