Fiduciary Rule May Take on SEC Influence

While the Department of Labor delayed final implementation of its fiduciary rule until July 2019, that doesn’t mean 2018 will be quiet on the fiduciary front.

In fact, it could be a big year for sorting out the future standard that agents and advisors will abide by when selling products into retirement accounts, said Michael Hedge, director of government relations for the National Association of Insurance and Financial Advisors.

The Securities and Exchange Commission will likely produce a rule that is later merged with the DOL rule, Hedge said Thursday, speaking at a NAIFA-Pennsylvania event in Camp Hill, Pa.

The resulting standard will not be so much a “fiduciary” standard as a general best interest one, he added. The industry objects to the liability created by the Best Interest Contract Exemption within the DOL rule.

Required to sell variable and fixed indexed annuities, the BICE is among the aspects of the rule delayed for 18 months. Meanwhile, the SEC under Chairman Jay Clayton is collecting comments on several questions related to fiduciary issues.

In time, perhaps in 2018, the SEC and DOL will likely will harmonize on a standard that puts the client first but does not create so much risk that the industry cannot service smaller accounts, Hedge explained.

No Legislative Fix

The regulatory route is even more important if you consider the bleak prospects that legislation to fix the fiduciary rule ever passes Congress.

The Financial CHOICE bill passed the House of Representatives in June. It would undo much of the Dodd-Frank Act, but also bar the DOL from passing fiduciary rules. The bill is languishing in the Senate, where it is likely to remain on ice, Hedge said.

"There aren't a lot of members of Congress right now who feel the political expediency to act," he said.

A bipartisan group of senators reached a deal in November to exempt about a dozen mid-sized banks from Dodd-Frank. That compromise likely ends any chance of the Financial CHOICE bill even gets to the Senate floor for a vote, analysts say.

Parts of the DOL went into effect June 9 and require anyone selling into retirement accounts to adhere to "Impartial Conduct Standards." That means they must act in the best interest of the client, make no misleading statements and accept only "reasonable compensation."

While the remainder of the rule is being delayed, the DOL has said it will not pursue offenders unless there is a blatant disregard for the rules that have taken effect.

"There's a lot of gray areas, but you've still got to pay attention," Hedge said. "Keep good records of what you're doing."

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.

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