Here’s Your Guide to ‘Reasonable’ Comp Under DOL Rule
With  the Department of Labor fiduciary rule taking effect June 9, agents face a lawsuit threat, analysts say.
When the deadline hits, agents need to be ready to act as fiduciaries when dealing with retirement funds.
âAny lawyer can sue on recommendations made June 9 and after,â said Kim OâBrien, CEO of Americans for Annuity Protection.
These four simple steps will best protect an agent/advisor while selling traditional products with retirement dollars, OâBrien said:
⢠Determine and document clientâs goals, needs, concerns, time horizon and risk tolerance first;
⢠Make recommendations that are in their clientâs best interests second;
⢠Make no misleading statements and disclose material conflicts of interests with compensation third;
⢠And record and retain all decision criteria as well as the customerâs agreement with all data, recommendations and decisions made.
In addition, any compensation must be âreasonable,â a DOL standard that has many in the industry shaking their heads. But a good market-based compensation scale should develop in good time, one analyst said.
âIt certainly should be an area of concern,â said Bruce Ashton, a partner with Drinker Biddle & Reath. âThatâs why I think weâre going to see benchmarking services developâ to track commissions paid across the industry.
That will require carriers sharing compensation information, Ashton said, something they will likely be willing to do, albeit anonymously. That does not mean the litigation threat isnât real, he added.
âItâs going to be something that gets challenged in litigation I suspect, and then itâs going to be a matter of providing evidence from some source or another,â Ashton said.
The DOL eased the pain somewhat with a companion announcement that it will not enforce the rule for the rest of this year. That includes the tax penalty the Internal Revenue Service would impose in case of a violation.
The DOL did not return multiple messages for this story.
Other Changes Likely
âReasonable compensationâ has been âbaked into ERISAâ law for decades, he added, so it is likely here to stay. But other aspects of the fiduciary rule face amendment under Labor Secretary Alexander Acosta, a staunch opponent of government regulation.
The good possibilities include eliminating the provision that does not allow clients to waive their class-action rights, Ashton said. Also, the secretary could eliminate the contract aspect of the Best Interest Contract Exemption, he explained. The contract created a private right of action for IRA owners, a strong point of emphasis for plaintiffs suing the DOL.
âThe term that comes to mind is to ârelaxâ the rule,â Ashton said. âI donât think theyâre going to do away with it because itâs not going to look good.â
The pro-rule Consumer Federation of America was âpleasedâ by Acostaâs decision not to delay the rule further, said Barbara Roper, director of investor protection, but is watching closely what happens going forward.
âWe may have a tough fight ahead to hold on to the key provisions of the rule that make it effective and enforceable,â she said via email. âAfter all, industry rule opponents have made clear that they support a best interest standard in name only, one that allows them to continue to profit unfairly at their customersâ expense.â
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].
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