Labor’s Day: Who’s Gonna Blink?

As financial industry lobbyists and hired guns blast away at U.S. Department of Labor’s proposed changes to conflict of interest rules governing retirement advice, corporate generals don’t seem concerned with losing business.

Nor do these corporate chieftains seem worried that they would be able to serve middle-class clients who purportedly would be harmed the most by the DOL proposal.

The contrast between the lawyers called to testify in front of the regulators last month and what corporate titans were willing to let on behind the closed doors of conference calls with Wall Street analysts could hardly have been more apparent.

“Regardless of what happens with the rule, we will not abandon middle-income families that desperately need our help saving for the future,” Glenn Williams, CEO of Primerica, said in a conference call with analysts Aug. 7.

“These families need to invest for retirement and if qualified investment plans are no longer an option, we could also potentially offer non-qualified investment plans,” Williams said.

James M. Cracchiolo, chairman and CEO of Ameriprise, reassured analysts that his company would take the proposed changes in stride. After all, he said, regulatory changes are nothing new.

“We've dealt with regulatory changes before and we will work with our trade associations and other stakeholders throughout this process to advocate for our clients with a goal of most appropriately satisfying the DOL's objectives,” he said.

“We continue to believe that Ameriprise is situated well and has the ability to respond to appropriate requirements to satisfy the DOL's objectives,” he also said.

In the wake of four days of hearings last month, industry lobbyists weren’t shy about predicting that millions of retirement investors would be even worse off than they are now if advisors ditched their smaller accounts.

Even the written comments submitted by financial companies themselves seemed incongruous with what the leaders of those same companies were telling Wall Street.

Primerica’s executive vice president and deputy general counsel Karen L. Sutkin wrote in her comments that the DOL’s proposed rule “will cause significant harm” to middle–income Americans by restricting access to retirement accounts.

Cynics might argue double standards are simply the way things work in a capital choked with double-dealing, about-face and subterfuge.

So will the well-financed lobbying machine, paid for by some of the wealthiest corporations in America, resign itself to following new Labor Department rules intended to improve and modernize retirement accounts?

Or will the cadre of federal Labor Department bureaucrats led by the soft-spoken and witty Timothy Hauser cave to industry demands and water down or back off proposals for stiffer conflict of interest rules?

Proponents of tighter conflict of interest rules say as much as $17 billion a year ends up in the pockets of advisors instead of investors due to conflicts of interest, and tighter rules around retirement investment advice has earned the backing of President Obama.

Industry lobbyists know the window is fast closing to make their case.

A second comment period, scheduled to last 14 days, will reopen sometime after the Labor Day weekend after which the department will come up with a final rule. The final version is expected next spring.

Public advocates and consumer groups have no doubt that the financial industry will continue to serve middle-income Americans. With retirement assets numbering in the trillions of dollars, no company or its distributors are going to walk away from a market segment that large.

And indeed, industry CEOs seem ready with alternatives should the DOL adopt the proposed rule with nary a change.

Williams said Primerica would offer investment solutions that fall outside of the DOL’s Best Interest Contract (BIC) exemption framework: managed accounts for clients with larger balances, for example, or individual retirement accounts (IRAs) with different levels.

“As an example, we could work with a limited group of providers to offer a list of investment alternatives, each with the same fee structure that we believe would, over time, be economically consistent with current profitability levels,” Williams said.

Even in the variable annuity space, where there’s a question of whether these products can be sold within qualified retirement plans under the DOL proposal, Williams said his company had options. Primerica books 70 percent of its variable annuity sales in qualified retirement plans, had options.

“If the industry can no longer offer this (variable annuity) option, we believe these investments would most likely move to managed accounts or mutual funds,” he said. “We also have a high level of confidence in the variable annuity underwriter's ability to adapt to change and bring new products to market.”

Company executives say they remain optimistic that the DOL will make changes to their rules, but just in case that doesn’t happen, financial companies aren’t lacking for a Plan B, C or D.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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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 cyril.tuohy@innfeedback.com.