Looking Ahead To Fiduciary Rule: Two Advisors Tell Their Tales

A year ago, financial services interest groups of every stripe pushed hard to sway Department of Labor regulators who were in the midst of drafting new conflict of interest rules governing the sales of financial products into retirement accounts.

Warnings were dire. Costs to retail financial advisors would rise and cause thousands of them to retire, scale back their practices or drop unprofitable middle market accounts.

Now that the final rule is on the books, insurance agents and financial advisors have had several months to mull over the real-world effects of the Conflict of Interest rule, a regulatory tome of more than 1,000 pages.

As is so often the case, the real-world reaction to a sweeping regulation in Washington is more nuanced than lobbyists would have you believe. Worst-case scenarios rarely come to pass, while new opportunity blossoms in unexpected ways.

In the case of Anthony Kosobud, president and principal of Retirement Journey Advisors in Minneapolis, the new rules have caused him to “license up.”

Having already passed the Series 6 and Series 63 exams, Kosobud is studying to pass the Series 65 exam, the Investment Advisers Law Exam. Passing this exam will allow him to act as an investment advisor representative in some states and offer investment advice for a fee.

“For us, there’s a great opportunity to enter the fee-based world and in this whole (DOL) thing you have to find the right niche,” Kosobud told InsuranceNewsNet.

A Series 6 exam already qualifies Kosobud to sell mutual fund products and variable insurance contracts. The Series 63 exam allows him to function as a “securities agent.”

But with the move toward a fee-based world, the 48-year-old Kosobud said the writing is on the wall: prepare to survive and thrive in a fee-based world.

Retirement Journey Advisors, which also specializes in 401(k) plans and income and insurance planning, is teaming up with CPAs, attorneys and other fee-based practices, as well as fee-based wealth managers, he said.

The licensure exams are offered through the North American Securities Administrators Association and administered by the Financial Industry Regulatory Authority, or FINRA.

In addition to the Series 65 exam, Kosobud said he’s half-way through earning his Retirement Income Certified Professional designation, which is issued by The American College of Financial Services and unrelated to the exams.

Too many advisors are in a “little bit of a haze,” Kosobud said, taking a wait-and-see attitude, especially with several industry group suing the DOL in federal court seeking to vacate the rule.

“They are waiting for things to happen and you can’t be that way, you have to be like Wayne Gretzky,” Kosobud said, referring to the Hall of Fame hockey player who once said he always planned to skate to where the puck was going to be on the ice.

Many industry experts expect that the DOL’s Conflict of Interest rule will shift industry business models away from commission-based products toward fee-based models in an effort to stamp out “self-dealing” and the temptation on the part of agents to steer clients into products from which agents themselves stand to benefit.

Jackson National, the top seller of variable annuities in the U.S., earlier this year registered to issue a fee-only variable annuity. Analysts said this product launch is in response to the dawning of a fee-based world.

Advisor Mulls 'Licensing Down'

In Syracuse, N.Y., many miles east of Minneapolis, Richard C. Murphy is at a different stage in his career. Murphy is founder of Richard C. Murphy Insurance & Financial Concepts.

Murphy already holds the Life Underwriter Training Council Fellow, Chartered Life Underwriter and Accredited Estate Planner designations. He told InsuranceNewsNet that while he has every intention of staying in the business, he’s thinking about not renewing his Series 6 securities license.

He may not need to.

Murphy has been a fixture at the Million Dollar Round Table, or MDRT, thanks to his life and disability insurance and fixed annuity sales volumes into the high net worth market. But the argument to remain licensed to sell variable products is wearing thin for him.

“If the world of equities went away, I’d do just fine,” Murphy said. Staying away from the investment portfolio “wouldn’t change my quality of life.”

The reason to consider surrendering his equities license is that if some products that he sells under the DOL’s Best Interest Contract Exemption open him and his family up to class action disputes in the future, then he figures he’s better off letting colleagues handle it.

By the time plaintiffs take umbrage with Murphy’s investment advice, he may be long gone but he fears his family still may be a target.

He has seen too many park bench ads from plaintiffs’ attorneys soliciting life insurance policyholders to call if they believed they have been wronged.

If a variable annuity turns up as the best tool to fulfill a client’s planning needs, Murphy said he simply would refer his client to a partner who holds the proper training and licensing requirements.

Most people he has talked to aren’t talking about dropping their securities licenses, but Murphy also said he remains wary of rising errors and omissions (E&O) professional liability premiums. He estimates that his E&O coverage costs him less than $2,500 a year, which is still affordable.

But when obstetricians pay hundreds of thousands in professional liability premiums annually, Murphy has no doubt that his professional liability insurance company will have no qualms about raising the price of E&O when the day comes.

When it comes to variable products and insurance policies tied to stock indexes, “I may stay away from those things,” he said. “I don’t need them.”

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

© Entire contents copyright 2016 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

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].