‘Get Ready’ For DOL Fiduciary Rule: Lawyer

It’s a good idea to start preparing right now for the forthcoming Department of Labor fiduciary rule, according to Washington attorney James F. Jorden.

The industry needs to start thinking about education on fiduciary, appropriate training, and whether they can produce the disclosures called for in the rule, Jorden said.

The suggestions apply to insurance marketing organizations (IMOs) and broker-dealers (B/Ds) as well as to insurance and financial services companies, said Jorden in an interview with InsuranceNewsNet. He is a shareholder at the law firm of Carlton Fields Jorden Burt.

Jorden said his remarks refer to DOL’s initiative to broaden the fiduciary standard for advice to include advisors in the retirement sector who currently work under the suitability standard. The DOL has closed public comment on its fiduciary proposal, and is expected to issue a final rule in the spring.

Keep fighting

That doesn’t mean rule opponents should “give up” on their efforts to use litigation and legislation in an effort to block implementation, Jorden stressed. “They will still want to fight this (rule).”

But preparation is important so the industry isn’t caught off guard, he added.

Speaking as a litigator, “that’s what we do,” he said. “We prepare in advance.” The purpose is to identify ways to start responding to various possible outcomes.

Due to the administration’s strong support for it, “some form of change in existing rules will occur,” Jorden said, adding that his firm is preparing.

“We’re looking at what we can do to help clients if this happens or that happens,” he said. “How will we start? How will they start?” The clients include distribution firms as well as manufacturers.

Examples of expected changes include “substantial” documentation and recordkeeping obligations, the “fiduciary” label, and “best interest” concepts to be implemented, Jorden said.

Some of the questions that need to be addressed include matters about agent and advisor training in the retirement market. Examples include: Who are we to train and how? Will they need additional training?

In the independent distribution channel, the IMOs might want to start providing education on how the fiduciary standard will change the sales process as compared to todays’ suitability standard, Jorden said. The same goes for broker-dealers.

Some distributors may have questions for product manufacturers, too, he said. “For instance, will products change, and if so how?” How will fixed, indexed and variable annuities be treated?

For insurance companies, a lot of the questions will have to do with disclosure and training, Jorden predicted. They need to think through and address whether they would need to make changes in these areas, and if so, what changes and how they would accomplish the changes.

Other possible questions: What happens in case of replacement of policies? Should we look at IMO and agency contracts in view of this? Do recordkeeping practices need to change?

Some issues, such as potential conflicts between the federal rule and laws in certain states will be knotty and likely end up in litigation. But firms can start examining the more certain areas now.

Company task forces could do this analysis, he suggested. This doesn’t mean they need to need to start implementing changes, though. Rather, the companies should “step back and take a look” so their firms won’t be unprepared or unable to respond, Jorden said.

This will help protect the firm, its directors and officers, and the interests of shareholders (for stock carriers) and policyowners (for mutual companies), he added. The same goes for officers of IMOs and other distributors.

Reactions might vary

These getting-ready reviews might not be as horrible at it may seem at first, Jorden said. For instance, some firms with extensive disclosure procedures already in place may conclude that they will only need to make slight adjustments, he explained.

On the other hand, some firms might not currently do much along those lines. In that case, a review now will help them see what they will likely need to do. This would be a good time to determine who will be responsible for what areas, for instance.

“Try asking, does this (process or approach) create issues for us in our relationships with agents, B/Ds, IMOs, or others?” Jorden suggested.

The analysis may lead some firms to conclude that the rule will impose even greater issues than the companies had imagined, he added. One area where this might occur is cost. “The problem is, there has been no cost analysis (from the government) related to the rule,” he said. Another area has to do with projected time it will take to adopt requirements.

In that case, if a number of companies and firms reach similar conclusions on certain issues, “they might go to DOL to seek a delay on implementation,” he said.

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.