Labor Department Delays New Rule Regulating Financial Services

April 13--An Obama administration rule designed to reduce conflicts of interest for those who help people with their retirement portfolios will not go into effect as planned next week, and may be weakened by the U.S. Department of Labor.

The delay until June of what's known as the fiduciary rule is expected to give the new administration time to revise parts of it. The Department of Labor announced the delay earlier this week.

However, since financial services companies have had a year to prepare for the regulation, they have already been changing how they compensate their salespeople and price their services.

Annuities, an insurance product that allows savers to buy a pension-like stream of income for life, have been a particular target of the rule, because many varieties have a complex set of fees and penalties, and provide sellers with high commissions. The portion of the rule that deals with annuities will now take effect Jan. 1, 2018.

The Obama administration said that many brokers and advisers placed people into products that cost more and offered no better returns than lower-cost options because they received higher commissions for those choices. So, the Labor Department said that all financial professionals who manage retirement savings would have to put clients' interests first.

Annuities are sold by Voya Financial, which has nearly 2,000 employees in Windsor; and Lincoln Financial, which has 700 employees in Hartford.

Prudential Financial's annuities business headquarters is in Shelton, and the company employs more than 1,700 people in Connecticut. Prudential CEO John Robert Strangfeld said during a February call with stock analysts that the company supports the re-evaluation of the fiduciary rule.

Lincoln National Corp. CEO Dennis Glass said on an analysts call in February that the impending rule was contributing to the decline in annuities sales. "The entire industry has been built on commissions and active fund management in the sub-accounts," Glass said. However, he described what he called "refreshment activities" for Lincoln's products, such as lowering payments to broker dealers in tandem with reducing fees to clients.

Fixed indexed annuities, which also were targeted in the pending rule, also had a drop in sales after the rule was published. About 2/3 of fixed indexed annuities are in IRAs, and about 60 percent of variable annuities are in IRAs.

Variable annuities have been selling less well since the pending rule was announced, but LIMRA, an insurance industry research group in Windsor, said that's not just because of the new scrutiny suggested for the product.

Todd Geising, assistant research director in LIMRA's Secure Retirement Institute, said in 2014 and 2015 there was about $124 billion in variable annuity sales.

Because low interest rates have made it harder for companies to offer income guarantees that are attractive to customers, those numbers would have fallen to about $112 billion, Geising says, but the combination of those forces and the pending regulation made sales fall 20 percent.

Geising said LIMRA expected that total annuity sales would drop 10 to 15 percent if the fiduciary rule was implemented, and that sales would shift away from variable and fixed indexed annuities to the simpler immediate annuities or deferred annuities, which are like buying your own pension.

Andrew Komarow, an independent financial adviser in West Hartford, said networks of brokers and insurance salespeople "have spent millions and millions of dollars complying with the rule." For instance, moving from paying workers through commission, which is often opaque to the customer, to a fee.

Lincoln Spokesman Michael Ancaro said, "We have supported the intent of the DOL rule and its overarching goal to further ensure that client best interest is served by increasing transparency of cost and by allowing clients to choose how their financial advisers should be compensated."

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