Because the Department of Labor must have its new fiduciary rule in place before Jan. 20, 2017, the day the new administration takes office, DOL will push to issue a final rule by May 2016, according to ERISA lawyer Steve Saxon.
After the comment period expires July 21 on its reproposed rule to amend the definition of fiduciary under the Employee Retirement Income Security Act and DOL conducts an August hearing on the redraft, DOL will not have time to issue a reproposal of the plan, rather the department will go straight to a final rule, Saxon, chairman of Groom Law Group, said Monday at the annual SPARK conference in Washington.
If the DOL's redraft is still "outstanding" by Inauguration Day, and a Republican candidate wins, that would present problems for the Obama administration-backed rule, Saxon said.
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While current legislative efforts to require the Securities and Exchange Commission to move first before DOL in issuing a fiduciary plan will "get considered" by lawmakers, Saxon said, the DOL "will forge ahead" with its fiduciary redraft.
A more informed reading of the existing product suitability standard should surmount the DOL's concerns, says McNeely.
Saxon also noted an October effort looming to "defund" DOL's fiduciary plan.
Both Saxon and Groom attorney Tom Roberts, who also spoke at the SPARK event, wondered how the recent letter from Sen. Elizabeth Warren, D-Mass., regarding conflicts of interest tied to incentives offered by the 15 largest annuity providers will impact DOL's fiduciary rulemaking.
Warren's April letter was sent to the companies with the highest 2014 U.S. individual annuity sales: Jackson National Life, AIG Cos., Lincoln Financial Group, Allianz Life, TIAA-CREF, New York Life, Prudential Annuities, Transamerica, AXA USA, MetLife, Nationwide, Pacific Life, Forethought Annuity, RiverSource Life Insurance and Security Benefit Life.
Warren's letter raised concerns about the rewards and incentives these companies offer to brokers and dealers who sell annuities to families and small investors, explaining that "annuity providers offer a vast range of perks — from cruises to international travel to iPads to diamond-encrusted 'NFL Super Bowl Style' rings to cash and stock options — to entice sales of their products."
Said Warren: "I am concerned that these incentives present a conflict of interest for agents and financial advisors that could result in these agents providing inadequate advice about annuities to investors and selling products that may not meet the retirement investment needs of their buyers."
The questionable practices, she said, "highlight the need for a strong conflict-of-interest rule" from DOL to protect retirees by requiring advisors to act in their clients' best interests.
Michael DiCensco, managing director at Mesirow Financial, noted during a separate session at the SPARK event that variable annuities are impacted by DOL's fiduciary redraft, but said questions remain about whether variable life insurance is included. "There is a lot that's still in motion," regarding the redraft, he said. "We need to look at it all and see what effect it will have and where."
That being said, under DOL's plan, "if you're going to accept commissions then you have to disclose, disclose, disclose," which he said puts pressure on margins. "You have to determine what your business model looks like going forward. Whatever your business model is going to be is very important."
DiCensco warned that regulators — DOL, SEC, the IRS and state insurance commissioners — are "staffing up" their stable of auditors to brace for fiduciary rulemakings. "Ramping up of auditors is about finding revenue," he said. "Do you think [the redefinition of fiduciary] allows them to go after more plan sponsors and advisors?" he asked. "Yes, there is a revenue model here. You have to create a business model that will protect you."
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Melanie Waddell
Melanie is senior editor and Washington bureau chief of ThinkAdvisor. Her ThinkAdvisor coverage zeros in on how politics, policy, legislation and regulations affect the investment advisory space. Melanie’s coverage has been cited in various lawmakers’ reports, letters and bills, and in the Labor Department’s fiduciary rule in 2024. In 2019, Melanie received an Honorable Mention, Range of Work by a Single Author award from @Folio. Melanie joined Investment Advisor magazine as New York bureau chief in 2000. She has been a columnist since 2002. She started her career in Washington in 1994, covering financial issues at American Banker. Since 1997, Melanie has been covering investment-related issues, holding senior editorial positions at American Banker publications in both Washington and New York. Briefly, she was content chief for Internet Capital Group’s EFinancialWorld in New York and wrote freelance articles for Institutional Investor. Melanie holds a bachelor’s degree in English from Towson University. She interned at The Baltimore Sun and its suburban edition.
