Insurers Rejoice At (Near) Death Of DOL Fiduciary Rule

By Cyril Tuohy

The Department of Labor fiduciary rule is just about dead and insurance executives are rejoicing, but not too loudly.

“I think everybody is sort of cautious right now,” said Dennis R. Glass, president and CEO of Lincoln Financial, when asked about distribution partners in the wake of the latest regulatory developments.

The Fifth Circuit Court of Appeals rejected last-minute appeals this week by AARP and three states to review its March 15 decision to toss the DOL fiduciary rule.

Denying the AARP and states' motions essentially kills the rule for good. The court could decide to re-hear the case on its own, which seems unlikely.

Otherwise, the government has until June 13 to ask the Supreme Court of the United States to take the case. That also seems highly unlikely.

At Prudential, a big variable annuity seller, “there’s generally improving sentiment in the distribution markets around Department of Labor fiduciary rule outcomes, and that certainly helps on an overall basis,” said Stephen P. Pelletier, executive vice president and chief operating officer of Prudential’s U.S.-based businesses.

Among independent marketing organizations, through which the bulk of indexed annuities are sold, the focus has retuned on growing the agent base as the DOL rule fades, said Ron J. Grensteiner, president of American Equity, a big seller of indexed annuities.

The DOL rule made it more difficult for distributors to sell variable and indexed annuities into retirement accounts.

Insurers Stand Behind SEC

With the DOL rule headed to the grave, setting fiduciary or best-interest standards falls on the Securities and Exchange Commission and the states.

The SEC proposal sets a best-interest standard and calls on brokers to establish policies to identify and avoid conflicts.

Separately, state regulators such as those in New York, are aggressively moving to establish best-interest standards for the sale of life and annuity products.

The SEC standard contains provisions such as product choice and no bias toward fees or commissions as a form of compensation, he said.

“So that’s all very good,” Glass said.

Shifting enforcement from plaintiff’s lawyers to FINRA is also a big step in the right direction for distributors, he said. The SEC proposal will maintain the FINRA arbitration process, analysts say.

“We're very encouraged with the SEC proposal, and we think over time that'll be good for the industry and good for the customers,” Glass said.

SEC Seen Influencing Suitability Standard

If adopted, the SEC standard could have wide-ranging influence on how the National Association of Insurance Commissioners regulates the sale of insurance products, said John M. Matovina, chairman and CEO of American Equity.

The NAIC is trying to update the suitability standard for annuity transactions, but is having difficulty reaching a consensus on a model law for the states.

“The SEC standard, if adopted, will not apply to sales of our products but could influence the NAIC’s proposed changes to the suitability standard,” Matovina said.

“We are working closely with the NAIC and state insurance regulators, both directly and through industry trade groups, to ensure that the revised standards protect policyholders while allowing for independent agent distribution,” he said.

The DOL rule was created by the Obama administration, but Trump ordered the DOL to delay and further study the rule soon after taking office.

Parts of the rule went into effect June 9, but the more stringent exemptions needed to sell variable and fixed indexed annuities were delayed until July 2019.

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

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].