Labor Proposes Easing Fiduciary Rule on Fees for Some Annuities Sellers
January 20, 2017 by Lisa Beilfuss
The Labor Department is proposing to water down an element of its new retirement-savings rule that would allow purveyors of certain annuities to continue charging commissions, though the concession isn’t likely to appease the rule’s harshest critics.
The proposal, coming in the waning hours of the Obama administration, would effectively exempt some indexed-annuity sellers from the fiduciary rule’s standard of giving advice to retirement savers that is free of conflict. It would let insurance intermediaries known as independent marketing organizations, or IMOs, with at least $1.5 billion in annual fixed annuity sales over the past three years to take on supervisory responsibility for independent annuity sellers and qualify them for an exemption to the rule.
Roughly half of all fixed-indexed annuities sold each year in the U.S., or about $30 billion, are done through the independent channel, outside of a bank or insurance company. Independent sellers lean on IMOs for compliance support, among other things. Adding such organizations to the list of financial institutions eligible to operate under the fiduciary rule’s best-interest contract exemption would let many annuity sellers remain in business.
Annuities—tax-deferred savings, investment and lifetime-income products issued by insurance companies—typically generate commissions that can run afoul of the fiduciary rule. An indexed annuity, in its simplest form, promises a return tied to a stock market index while also guaranteeing against losses if the market declines. But the products can become complicated as sellers charge more for additional features, and they have limits on investment gains.
The proposed exemption, which had been in the works since late last year, was unveiled by the department on Thursday, launching a 30-day comment period. The fiduciary rule is set to take effect April 10, if efforts to delay its implementation don’t succeed.
In issuing the proposed exemption, the Labor Department addresses one of the biggest complaints from those opposing the fiduciary rule: that it would destroy the business of many independent annuity sellers. The National Association for Fixed Annuities has been leading the charge against the rule in the courts as a party to one of several cases seeking to kill the rule or narrow its reach.
Still, industry players say the proposal isn’t likely to move the needle much when it comes to critics’ efforts to delay and possibly repeal or revamp the rule.
Ben Nevejans, president at LifePro Financial Services Inc., a San Diego-based IMO, called the proposal “a good attempt” to make it easier for independent annuity sellers to continue earning commissions.
But he said the need to have $1.5 billion in annual annuity sales to qualify for the proposed exemption, in addition to the costs associated with compliance, means “it’s impractical for most of the firms out there.” He said “it doesn’t change anything” when it comes to the industry’s desire to kill the rule.
Many experts still anticipate that the new administration will move to delay the rule’s April compliance deadline.
Kapin Vora, head of wealth management at consulting firm Capco, said he expects a two-year delay and notes that about half of his clients affected by the rule have recently either halted or slowed efforts to become compliant. He said the newly proposed exemption may provide some relief to the annuities industry, but he doesn’t think it changes the likelihood that the rule is delayed.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com