Scottrade Case Sends Chilling Message to Annuity Sellers

By Kim O'Brien InsuranceNewsNet

Commentary

Americans for Asset Protection (AAP) is fully engaged with the FACC Campaign and participating in its efforts to fix the BIC Exemption and move FIAs permanently back under the transitional 84-24 Exemption. The AAP Board of Directors believes that people across the economic spectrum should have the power to choose their own future, not just those who have the opportunity of choice because of unfair regulations. For more information about AAP contact [email protected] or call 414-982-5957.

Great Scott! Or should we say Great Scottrade!

If there was any doubt the fiduciary rule was going to change life in the financial services industry, all doubt is now removed. In case you missed it, the Massachusetts Securities Division filed charges against Scottrade for knowingly violating internal policies regarding implementation of the DOL fiduciary rule.

Perhaps this is most significant because a state agency is finding a backdoor to enforce the rule even as the rule is under review by the U.S. Department of Labor. The state filed the complaint charging Scottrade with “dishonest and unethical activity and failure to supervise” for conducting sales contests that violated the U.S. Labor Department’s impartial conduct standards.

In suing Scottrade, Massachusetts has gone further than other states, but those states may not be far behind. Connecticut, Nevada, New Jersey, New York, and others have passed laws, proposed regulations or are considering proposals that mirror much of the federal rule’s requirements.

'It's Really Immaterial'

And if that weren’t enough, Alabama Securities Division Director Joseph Borg added his intention to pursue DOL Rule violations, stating:

Whether it’s a DOL rule or not, it’s really immaterial. We start from the premise that there’s a rule on the books, and the fact that one agency has put off enforcement for a while doesn’t mean we’re not going to look and see if there’s a violation that harms our citizens.

While the Scottrade case and these various pronouncements generally are directed at the securities industry, not fixed annuities, the implications are deeply worrisome. The Fixed Annuity Consumer Choice (FACC) Campaign is concerned these developments prove the U.S. Department of Labor is losing control over the rule and unleashing uncontrolled forces such as hyper-aggressive state regulators and the always profit-hungry plaintiff’s bar that may wreak havoc on the financial services industry.

As stated bluntly by Eugene Scalia, counsel for the U.S. Chamber of Commerce, lead plaintiff in the case trying to overturn the rule, in a letter filed with the U.S. Court of Appeals for the Fifth Circuit in urging the appellate court to render its decision:

The action also shows that the fiduciary rule is exacerbating the risk of litigation, even absent best-interest [BIC] contracts. This enforcement action — which seeks censure, fines and disgorgement, among other penalties — vividly illustrates the urgent need to vacate the rule.

These developments underscore the urgency of our mission at FACC. We must get the rule and exemptions fixed before effects of the rule begin to be felt in our industry, events overtake the regulators, and the rule’s requirements become fait accompli.

We cannot simply wait until July 2019 while the Labor Department studies what changes to make to the rule or exemptions. We must act now.

Not Compatible

FACC’s position is simple, as we have shared directly with the Labor Department. The Best Interest Contract Exemption, or BICE, is inherently incompatible with the independent distribution business model for fixed annuities.

That is largely because individual insurance companies cannot warrant “prudence” or “loyalty” of independent agents, those terms are used in ERISA, because independent agents are … well … independent and so one insurer does not control an independent agent’s sales for other company products or compensation for those sales. FIAs must be moved out of BICE and back to PTE 84-24.

FACC will continue to work hard towards that goal. FACC met with the key policy makers at DOL last month and is working with Congress to find support for our position. According to FACC Campaign Chair Dwight Carter, “there will simply be too much risk to sell FIAs unless these products are removed from BICE and placed in current PTE 84-24 or something equivalent.”

Please help us in our work to convince the Labor Department to amend the rule and exemptions, remove uncertainty for the independent agencies and agents, and avoid disastrous consequences for our clientele seeking the unique combination of market-linked gains and retirement safety provided by FIAs.

Kim O’Brien is a 35-year veteran of the insurance industry specializing in guaranteed annuities and life insurance. She is the current CEO of Americans for Annuity Protection and Founder of AssessBEST, Inc., a sales and compliance software system. Visit www.AAPnow.com or www.AssessBEST.com for more information.

This article is provided for educational and informative purposes only and not for the purpose of providing legal advice. Readers should consult with their own legal and compliance counsels to obtain guidance and direction with respect to any issue or question. Contact Kim at [email protected].