The Department of Labor fiduciary rule is gone but clearly not forgotten.
In fact, rumors are rampant that the Biden administration plans to rework exemptions within the Trump administration's investment advice rule to closer resemble the Obama-era fiduciary rule.
The Biden administration allowed the investment advice rule to take effect Feb. 16, which seemed to signal an end to the back and forth rule rewriting. But Preston Rutledge, former assistant secretary of labor for the Employee Benefits Security Administration under Trump, said the DOL is likely taking "a methodical approach to rewriting the fiduciary rule."
The fiduciary rule imposed significant restrictions and liability on the traditional commission-based system of selling annuities. In particular, fixed indexed and variable annuities. A federal appeals court sided with industry plaintiffs and tossed out the rule in 2018.
"When EBSA rewrites the rule, which I believe they will, they may try to restore some of the 2016 rules provisions that were not specifically addressed in the 2018 court decision," Rutledge said, speaking Thursday at the LIMRA Retirement Industry Conference.
"One example might be a return to the 2016 treatment of the prohibited transaction 84-24," Rutledge said. "That was, in 2016, amended and partially revoked to no longer provide relief for transactions relating to indexed annuities and variable annuities. And this is an important exemption for the insurance industry."
He did not elaborate further.
The investment advice rule has two main parts: a new prohibited transaction exemption allowing advisors to provide conflicted advice for commissions; and a reinstatement of the "five-part test" from 1975 to determine what constitutes investment advice.
The new rules include Prohibited Transaction Exemption 2020-02, designed to allow fiduciary advisors to qualify to be paid a commission for selling products or services to qualified plan participants and individual retirement account owners.
Insurance agent were expected to continue using PTE 84-24, which has covered insurance agents and brokers and their affiliates for decades, allowing them to sell life insurance and annuities to qualified plans.
Here is where we could see the changes, said Fred Reish, a partner with the law firm Faegre Drinker Biddle & Reath. What it means is unknown, but he offered three possibilities:
First, there is speculation that it will mean that variable and fixed indexed annuities will be moved from 84-24 and placed in 2020-02.
Another theory is that 84-24 will be amended to add several of the 2020-02 requirements, for example, the Impartial Conduct Standards.
Impartial Conduct Standards are a best interest standard, a reasonable compensation standard, and a requirement to make no materially misleading statements.
A third theory is that 84-24 will be revoked in its entirety, leaving 2020-02 as the only available exemption for insurance products of all kinds.
"In addition, there is some discussion about 84-24 covering only commission compensation, meaning that other compensation, such as trips and awards, would not have an exemption," Reish added.