As you read this, most of you are aware that the Comment Period on delaying the DOL Rule was due last week. Americans for Annuity Protection filed their request for delay and we cited key reasons why a delay is warranted. Here is a less formal version of our rationale.
AAP is a unique consumer advocacy organization because it is directed by experts who have worked in the annuity and life insurance industry with almost 200 years of collective experience serving consumers with annuities and life insurance.
The AAP Board of Directors include areas of expertise in product development, academia, financial planning, legal and distribution. AAP is possibly the only consumer advocacy organization that understands why consumers seek annuities and life insurance products and what product features and advisor choices bring them satisfaction with their retirement savings plan.
AAP requested a delay in the effective date of the Rule from Jan. 1, 2018, to at least Jan. 1, 2019, with a continued application of the requirements outlined in the transitional rule issued April 7, 2017. AAP has three reasons why a delay is not only necessary, but mandated.
ONE: Implementing/Changing/Re-implementing will be EXPENSIVE
Expense and resource allocation burdens on financial services providers and distributors to implement the current Rule, only to make significant and probable changes as a result of the department’s review would be enormous. Customers almost never benefit when the costs of doing business increase exponentially as they have under this Rule.
The questions outlined in the department’s July 6 Request for Information indicate that it recognizes areas of the Rule that are difficult to confidently satisfy or extremely expensive and complex to implement. These areas will make it more difficult for consumers to receive needed advice at the reasonable prices they do today.
As of June 9, 2017, annuity providers are requiring adherence to and compliance with all aspects of the Impartial Conduct Standards, including disclosure of conflicts of interest. Therefore, a continued delay would provide consumers unfettered access to qualified annuity advisors and annuity products, while ensuring that recommendations to take action with their qualified retirement funds would be made in their best interest.
TWO: Legislation, Litigation and/or Agency Action Take Time
Trying to quantify how long it takes for a bill to become law glosses over all the reasons why some bills take longer to pass than others. The time from introduction to that first hearing varies wildly and depends on both the urgency of the legislation and its sponsors. However, here are some key stats from the 113th Congress (Source: Quora.com)
• 5,884 bills were introduced in the House and 3,020 introduced in the Senate.
• 857 House bills received committee hearings, as did 377 Senate bills, meaning 86 percent of bills die after being introduced.
By the end of the Congress, only 296 Public Laws had been enacted. Granted some of these bills included the text of several bills, but if we were to assume 1 law = 1 bill, then that would mean 96.7 percent of bills introduced in the previous Congress did not become laws.
So what we have from pulling data from 113th Congress.gov (the most recent available) we had the following:
• Average: 263.57 days
• Median: 215 days
• Minimum: 1 day (1 - H.J.Res.131: "Making further continuing appropriations for fiscal year 2015, and for other purposes," a government shutdown stopgap)
• Maximum: 712 (3 - two Post Office namings and the template for the "Cromnibus")
Litigation Offers No Relief
On the litigation front, we have had three at bats and three strikes in DC, Kansas and Texas. The last one standing is the lawsuit brought by Thrivent Financial for Lutherans, which is challenging a provision in the regulations that they contend violates the Federal Arbitration Act.
There is some indication there may be more meat in this case as the Department of Justice recently backed off the arbitration provision and the Labor Department announced its intention not to enforce it.
This could be good news for consumers’ access to annuities and affordable annuity advice, but, again, the calendar is not on our side. We are heading into August and there is little time left for the industry to begin preparations for full compliance. So, begin they must, and once in motion, the ship is difficult to turn around.
Regarding action from the department itself, it appears very unlikely that we will see any action before late fall. Comments on the recently issued RFI are due Aug. 6 and any changes will need to be submitted to the Office of Management & Budget, and posted for additional comments etc. Tick Tock!
THREE: It May Already Be Too Late
Insurance companies, designated financial institutions and advisors will need to begin implementation of compliance plans in the next 45 days. Fiduciary Rule and Prohibited Transaction Exemptions substantially change existing business models including, but not limited to, hiring additional personnel, implementing full-scale system changes for compliance, compensation, policy issuance and customer service, setting up policies and procedures for advisors, determine supervisory/qualified financial institutions.
If the department determines that additional changes are warranted, it will require even more substantial changes and, in some cases complete system and business reversals. That will cause considerable damage to the annuity marketplace, driving advisors from the industry and causing immeasurable confusion for retirement savers.
Meanwhile, as we await the outcome, advisors should stay active and involved in efforts to delay and efforts to fix this unworkable Rule. Don’t waste the dog days of summer. Take the time now to move your practice into compliance with Impartial Conduct Standards. The standards are the new normal and there is little chance they will go away.
Find a standardized system that demonstrates you make best-interest recommendations, documents your analysis to prove compensation is reasonable and record client agreements so you can be sure no claims can be made that your statements are misleading.
When you get back to “school” this fall, your class paper on “What I Did on My Summer Vacation” should highlight moving your business forward under best interest standards and not clinging to a past that is passed.
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]
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