Fiduciary Proposal The Latest Hot Topic Among Life Insurance Execs

With the initial batch of first-quarter earnings from life insurance companies now part of the record, the Department of Labor’s (DOL’s) new fiduciary proposal has supplanted interest rates as the hot topic among life insurance company executives.

In opening remarks and in response to questions from equities analysts, the executives said they were looking closely at the implication of the DOL’s new rules and their implications for qualified retirement plans, compliance and agent commissions.

Larry D. Zimpleman, chairman and CEO of Principal Financial Group, said the standards proposed by DOL “will continue to complicate the U.S. retirement plan industry.”

A more complex retirement world, however, would benefit first-tier retirement plan providers such as The Principal, and new proposed standards would improve the company’s retirement asset retention rates in the long run.

“I believe the net impact of the proposed regulation will shift some of the influence from the advisor and brokerage firm to the retirement services provider,” Zimpleman said in the company’s first quarter earnings conference call with investors and analysts.

The DOL published the new rule for comment April 20 and the comment period ends July 6.

Labor Secretary Thomas E. Perez has rejected calls from as many as 16 industry groups to extend the fiduciary comment period from 75 days to 120 days. The proposed rule stretches into the hundreds of pages.

The rule would impose the fiduciary standard on anyone getting paid for advice related to a retirement investment decision, including insurance agents. Some experts have gone so far as to call the rule a “game-changer,” as it imposes a blanket fiduciary standard for all retirement advisors, brokers and insurance agents.

Zimpleman said the proposed rules “redefine what scale is in the sort of 401(k) and retirement plan business.” He added that if the proposal is adopted, it will make it difficult and expensive for second- and third-tier retirement plan providers lacking extensive technology platforms and investment options.

In response to a question from Raymond James & Associates analyst Steven Schwartz about fund choice within a retirement plan, Zimpleman said the test is whether proprietary funds from a retirement plan provider compete in terms of investment performance and fees.

If they do, then “I can’t see any reason by the Department of Labor would just per se wall off your ability to put those investment options — which are value-add for the participant — why they would not allow those to be on the platform,” Zimpleman said.

One of the tenets of fiduciary duty is for advisors to provide what is best for the plan participant, even if that means overlooking funds managed by a plan provider such as The Principal.

In a separate earnings conference call, James M. Cracchiolo, chairman and CEO of Ameriprise Financial, said any DOL “third standard” should not be “overly burdensome.”

He said any final DOL rule would have an impact on companies serving more than 100 million Americans saving for retirement. Any DOL rule should work with standards already in force by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), he said.

A third DOL standard, in addition to the SEC and FINRA standards, will mean additional compliance costs, he added.

Ameriprise chief financial officer and executive vice president Walter S. Berman was asked whether the proposal might put the distribution of proprietary products — mutual funds, annuities or life insurance — at risk. He replied that an early read of the proposal shows “there are exemptions as consistent with any other product sale.”

Dan Guilbert, executive vice present of the retirement division at Symetra Financial, said that based on an early reading of the DOL proposal, nothing would prevent fixed index annuities from being sold within an individual retirement account (IRA) plan.

About one-third of Symetra’s fixed annuity sales are sold within IRA plans versus nonqualified plans.

Tom Marra, president and CEO of Symetra Financial, said the company had talked to some of its distribution partners, but that distributors weren’t “terribly concerned” about fixed annuity sales within IRAs under the DOL proposal.

Marra said he was going to Washington this week to speak to legislative experts and that “hopefully there will be some movement that’s going to allow the industry to continue to provide these products which the public really needs in their IRAs.”

“And I think I’m confident we’ll work out the right kind of mechanics, but it’s got a lot of our attention,” Marra said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].