Insurers, Trade Groups Seek Further Delay in Final DOL Rule Deadline
August 8, 2017 by Frank Klimko
WASHINGTON – Life insurers and trade representatives urged the U.S. Labor Department to delay and modify elements of the newly effective fiduciary rule before its final deadline in January 2018, preventing the rule from further upending the retirement advice industry.
“The regulation — through a highly burdensome and paternalistic approach to regulation — effectively substitutes the judgment [and biases] of the department (DOL) for the judgment of individual investors and qualified plan sponsors,” said the American Council of Life Insurers in a comment letter on the rule.
“The ongoing harm to retirement investors as a result of this rule-making project is not speculative – it is very real and supported by data and evidence,” said the statement signed by James Szostek, ACLI vice president, taxes & retirement security; and Howard Bard, ACLI vice president, taxes & retirement security.
“Due to the regulation’s bias against commission-based compensation arrangements, the regulation has already resulted in restricted consumer access to annuities,” they said.
ACLI filed the letter in response to questions posted by DOL, which attracted 400 comments from a wide range of stakeholders. The DOL sought input on ways to streamline or modify the fiduciary rule before the final deadline. The DOL wanted to know about the efficacy of the Jan. 1 dates for full compliance and whether the rule, which is meant to force advisers to work in the best interests of their clients, as written is workable. The final comment deadline was Aug. 7 (Best’s News Service, July 14, 2017).
The initial implementation of the rule is already generating some market headwinds, said Sharon Cheever, senior vice president, general counsel, Pacific Life.
“Specific distribution partners of Pacific Life have already scaled back the retirement products they offer, limiting competition and consumer choice,” Cheever said. “Advisers plan to be more selective of the new investors they choose to service [i.e., those with higher amounts of assets to invest] which will limit access to retirement information and personalized advice for many.”
“Indeed, distributors continue to identify and eliminate clients with small to modest account balances in anticipation of the added compliance costs and heightened litigation risks generated by compliance with the rule,” Cheever said.
MassMutual recommended the DOL push back the final deadline for at least a year, until Jan. 1 2019.
“Without a prompt delay, investment advisers, broker-dealers, insurers and other financial services companies will be required to significantly accelerate spending millions of dollars now on system and readiness work necessary to implement the very provision of the PTEs (prohibited transaction exemptions) that the department is considering changing,” the company said in a comment letter.
John Hancock said it has already spent about $10 million in compliance costs as of last month and anticipates spending another $4 million by January. A six-month delay would help, said the letter, signed by James Gallagher, John Hancock executive vice president and executive counsel. The company generally supports the rule, with some modifications.
“If the department decides to adopt some of the changes recommended in our prior letter, such as rolling out new share classes or devising an enforcement mechanism other than class action litigation, additional compliance work will be required,” Gallagher said.
Multiple insurers, including Nassau Re, suggested that DOL delay implementation of the rule until it can be squared with a pending version from the U.S. Securities and Exchange Commission.
“A delay of the applicability date would reduce burdens on financial services providers and would benefit retirement investors by allowing for more efficient implementation responsive to the rule in its final form,” said Kostas Cheliotis, general counsel and chief operating officer, Nassau Re.
In addition to the DOL and the SEC, the National Association of Insurance Commissioners has formed a working group to consider possible revisions to the NAIC Suitability in the Annuity Transactions Model Regulation, which could include a best interest standard, said Catherine Weatherford, the Insured Retirement Institute’s president & chief executive officer.
“We believe it is critical that these three regulatory bodies – the department, the SEC and the NAIC – engage constructively with each other to ensure regulatory clarity and consistency,” Weatherford said. “Absent such engagement, financial professionals could easily find themselves subject to three very different and incompatible sets of rules, continuing the very same consumer confusion over standards of care we are all trying to address.”
California Insurance Commissioner Dave Jones opposed any delays.
“In the insurance context, existing suitability requirements for sales of annuities fall short,” Jones said. “There is no fiduciary duty and no prohibition against conflicted advice.”
A Best’s Briefing, “Opposition Continues Despite Initial Implementation of DOL Fiduciary Rule,” notes even with the ongoing uncertainty surrounding the DOL fiduciary rule, most companies continue to execute their compliance plans assuming full implementation of the rule as originally designed. Many view the prospects of an expansion of fiduciary standards to be inevitable, arguing implementing changes to comply with the current rule is in their own best interests from a risk management perspective, regardless of the outcome, the report said.
Also, the report noted the impact to date on sales of the products most affected by the new rule, such as variable and fixed-indexed annuities, has been somewhat less than some companies had projected in their 2017 financial plans.
(By Frank Klimko, Washington correspondent, BestWeek: Frank.Klimko@ambest.com)
