IMOs to Press Ahead With DOL Compliance

Several executives with independent marketing organizations (IMOs) say Tuesday's election results are not changing their plans to comply with the Department of Labor’s fiduciary rule.

All systems are still a “go” with regard to applying for “financial institution” status under the fiduciary rule, said Nathan Hightower, general counsel and DOL team leader for the insurance marketer AmeriLife in Clearwater, Fla.

“We’ve read two or three articles about how the fiduciary rule is doomed, I’m not so sure that’s true,” said Hightower.

President-elect Donald Trump did not mention the controversial fiduciary rule during the election, but analysts say he is certain to oppose it.

"I would guess very quickly, maybe even on the first day or two of the next Congress you will see both the House and Senate repass legislation to repeal the fiduciary rule,” said Democratic strategist Michael Lewan, former chief of staff to Sen. Joseph Lieberman, D-Conn.

AmeriLife is one of at least 18 IMOs that have applied to the DOL for financial institution status under the rule, which raises investment standards for retirement advice.

Financial institution status would allow the independent insurance agents recruited by IMOs to continue selling fixed indexed annuities (FIA) under the DOL’s Best Interest Contract Exemption.

'Continuing to Proceed'

IMOs provide a vital link between insurance companies and independent insurance agents facilitating the sale of FIAs.

“We are continuing to proceed as if the rule will be implemented while staying engaged in the dialogue to get a more workable solution for the industry and our customers,” said Mike Kalen, CEO of Connecticut-based Futurity First Financial, owner of three IMOs and $2.5 billion in sales.

Agents and insurance companies last year sold more than $53 billion worth of FIAs, one of the hottest-selling products in the fixed annuity world.

Investors look to FIAs to guarantee their investment principal while generating higher returns than they would receive in a federally-insured savings account.

The fiduciary rule, published by the DOL in April, is designed to tamp down on agent and advisor incentive-based programs, which regulators say encourages conflicts of interests among distributors.

Congressional Republicans have tried several times to kill the fiduciary rule over the past several months. Anthony Scaramucci, one of Trump’s financial advisors, said before the election said a Trump administration would likely repeal the rule, according to news reports.

“A Republican administration is likely to reverse the pending DOL regs requiring investment product salespeople to act as customer fiduciaries,” said Matthew Josefowicz, president and CEO of Novarica, a Boston-based insurance consultant, in a note issued Wednesday. “While this may still happen long term, it's unlikely to be implemented in the next two years.”

SEC Working on a Rule

The DOL is not the only fiduciary rule on the horizon. The Securities and Exchange Commission is also working on a rule, Chair Mary Jo White has said, although it has no timeframe to finish the task.

Financial advisors and many insurance company executives say that in many cases selling financial products through commission-based models are in fact in the best interest of the client.

Regardless of what happens, Hightower said AmeriLife is prepared and that the consensus is to “go forward with our plan.”

A company internal committee conducted it’s regularly rescheduled DOL rule meeting on Wednesday and, as expected, Tuesday’s election results were a hot topic, he said.

“We're moving forward just as before the election,” Hightower said. “Nobody knows what's going to happen. You can’t believe everything you read.”

Indeed, nationwide polls and pundits had predicted for months that Clinton would win the election, but she came up short in vital swing states.

Industry groups are challenging the rule with four lawsuits in four different federal courts. The only decision issued so far went against the National Association for Fixed Annuities Friday, when a District of Columbia judge denied NAFA's request for a preliminary injunction.

NAFA is continuing with plans to appeal, said Chip Anderson, executive director for the group.

"We are still moving forward with our appeal and will continue our efforts to stop the DOL through the courts," said Anderson via email.

Despite “guarded optimism” regarding the rule’s eventual repeal, there would be no change in Annexus’ application for financial institution status, said David Rauch, general counsel and chief operating officer of an annuity product development company in Scottsdale, Ariz.

“There’s too much work to be done in too short a time period" to rely on a repeal, he said.

IMOs and insurance companies have spent tens of millions of dollars retooling systems and processes to comply with the fiduciary rule.

CNO Financial Group, the Carmel, Ind.-based holding company for middle market life insurers, said it would spend between $8 million and $10 million in 2017 to comply.

Ameriprise Financial reported last month that it had spent $7 million in the third quarter alone in connection with the DOL rule, bringing total spending this year in connection with the rule to an estimated $19 million.

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