DOL Likely To Spare FIAs, Analysts Say

By John Hilton

The Department of Labor’s final fiduciary rule is not likely to regulate fixed index annuities in the same way as variable annuities, a pair of industry experts said.

Although they emphasized that they have no inside information, Fred Reish and Bradley Campbell made the prediction during an informational webinar today.

“It just seems to me that the Securities and Exchange Commission hasn’t classified (fixed index annuities) as securities, so the DOL would go out on a bit of a limb in moving them over,” said Reish, a partner at Drinker Biddle & Reath in Los Angeles.

The DOL is finalizing the fiduciary rule and is expected to publish it in the spring. The rule would hold anyone working with retirement funds, including individual retirement accounts, to a much tougher fiduciary standard.

In its preliminary rule, the DOL exempted FIAs from the most arduous regulatory changes. In recent months, however, word filtered down that the agency was reconsidering that decision.

“I don’t know that there was really a huge amount of comments on calling for” tougher treatment of FIAs, said Campbell, former assistant secretary of labor. Campbell doubted the agency is motivated enough to “want to incur the potential allegations to be raised that they didn’t really follow the process.”

In the proposed rule, fixed annuities remain covered by the PTE 84-24 exemption. Variable annuities, which also are included in 84-24, would lose this exemption if the proposed rules are adopted.

Instead, these product sales could be eligible for the rule’s Best Interest Contract BIC exemption. The BIC includes a signed contract with the client, as well as disclosures on the product and any compensation received.

Reish and Campbell disagreed a bit on whether a rider attached to the omnibus government funding bill will succeed in shutting down the DOL rule.

The rider option is appealing to fiduciary opponents because it would force a confrontation with the White House. President Barack Obama would have to decide whether his fiduciary rule mandate is worth shutting down the government.

The rider option has potential, Campbell said. The government is scheduled to shut down Saturday if there’s no budget bill in place, but lawmakers have said they will pass a short-term bill to keep the government running for a few days.

A vote on the omnibus bill is expected next week. Many other riders are also in play, including those dealing with Planned Parenthood and Syrian refugees.

“I’m a little more pessimistic” about an anti-DOL rider, Reish said. “If the fiduciary rule were the only issue in America today that Republicans were concerned about, I’d probably be a little more optimistic.”

Any rider will likely take the form of a bipartisan set of principles offered last month by Reps. Phil Roe, R-Tenn.; Richard Neal, D-Mass.; Peter Roskam,R-Ill.; Michelle Lujan Grisham, D-N.M.; Earl “Buddy” Carter, R-Ga., and John Larson, D-Conn.

The lawmakers say the measure would ensure financial advisors act in the best interests of their clients. It would also effectively kill the DOL rule by taking over its mandate.

In a letter, the six lawmakers noted that Congressional involvement could include a legislative solution that would impose a fiduciary standard on brokers. It also could include working in coordination with the Labor Department by offering input and receiving updates on the agency’s proposed rule.

“We appreciate your engagement with Congress on the rulemaking and your continued support for the involvement of Congress in any major changes to our retirement system. We look forward to an open and productive dialogue on this critical public policy issue,” the letter said.

Recent days have included a flurry of lobbying and hearings in Congress. Members of the National Association of Insurance and Financial Advisors held more than 200 meetings with lawmakers last week to express concerns about the fiduciary rule.

The proposal will be enormously costly to advisors, while denying Main Street savers access to much-needed retirement advice, NAIFA has said.

“We look forward to working with Congress and the administration to ensure retirement savers have access to affordable advice to secure their futures,” said NAIFA President Jules Gaudreau, who testified at a House subcommittee hearing.

Democratic presidential frontrunner Hillary Clinton weighed in as well this week, penning a Sunday New York Times column urging Democrats to stay strong on the fiduciary rule. Clinton vowed that, if elected, she will pick up the fiduciary fight from the Obama administration, and said she would go further to strengthen Dodd-Frank regulations.

“I would also fight for tough new rules, stronger enforcement and more accountability,” Clinton wrote.

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].

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.