DOL Rule Forced Changes On Advisors, Survey Finds

The reviled Department of Labor fiduciary rule is gone, but a majority of advisors ended up making major changes anyway, a new survey finds.

Fifty-four percent of advisors say they will “very likely” increase compliance infrastructure as a direct result of the DOL rule. The data comes from “Harnessing Growth: The LIMRA-EY Experienced Financial Advisor Study,” based on an online survey of nearly 1,500 advisers.
Another 32 percent of respondents said they are “somewhat likely” to increase compliance infrastructure.

“We recognize that regulation is going to have continued importance in driving the industry toward a more fiduciary model,” said Mark Hopkins, executive director at Ernst & Young and an author on the study.

Introduced in April 2015, the DOL rule was aimed at advice provided regarding qualified retirement employer-sponsored plans and individual retirement accounts.

DOL officials claimed the rules, which imposed a fiduciary standard of care on financial advisors dealing with retirement accounts, are necessary to protect retirement investors from high commissions.

The rule allowed for commissions via a prohibited transaction exemption, but industry officials said it isn’t realistic due to the burdensome regulations.

The rules took partial effect in June 2017 before the Trump administration shelved the harsher requirements. Phase one required advisors and agents to act as fiduciaries, make no misleading statements and accept only “reasonable” compensation.

Industry critics said the new rules would force firms to dump smaller accounts and lead to an “advice gap” for those who need it most.

The LIMRA/EY survey is unclear on whether those things are going to happen. Twenty percent of respondents said it is “very likely” they will see a reduction in clients served due to the DOL rule, while another 34 percent said it is “somewhat likely.”

Likewise, 21 percent said it is “very likely” they will see a reduction of “less affluent” clients.

On the plus side, 74 percent of advisors said it is somewhat or very likely that the DOL rule will result in “more customized financial or retirement planning.”

The DOL rule was tossed out March 15 by a federal appeals court in New Orleans. Still, many firms, agents and brokers had already spent millions on compliance systems and new procedures for ensuring appropriate sales of annuities and related products.

Most insurers and agents say they are keeping new sales methods and compliance changes in place. Meanwhile, state-level regulators are considering, and in some cases, adopting, best-interest standards that resemble the DOL rules.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.