The Department of Labor’s proposed conflict-of-interest rule, which would require a fiduciary standard of care for advisors and brokers that recommend retirement investments to IRAs and most 401(k) plans, would impose vast new regulations on the insurance industry and brokers of their financial products.
That prospect raises the ire of the Americans for Annuity Protection, a newly launched non-profit advocacy working to extend the reach of fixed-income insurance products in workplace retirement plans.
A recently published policy paper by the group defends what it thinks are rigorous legal obligations the insurance industry already operates under to assure annuity recommendations are made in the best interest of clients.
“If this rule goes into effect as is, it will establish conditions that will keep ordinary consumers from getting the advice and assistance they so desperately need,” argue the authors of the paper.
“And instead, this will place more of Americans’ money in risky investments while sending more wealth into the already ample coffers of Wall Street firms.”
The paper calls on the DOL to withdraw the rule, arguing that the Securities and Exchange Commission “is the only agency Congress has authorized” to regulate products sold to retirement investors.
But insurance agents that sell annuities are licensed and regulated at the state level, leaving many annuity products outside of the SEC’s jurisdiction.
In calling for the DOL to withdraw its rule, the authors make no mention of the SEC’s limited jurisdiction over the insurance industry in the section of the paper that outlines the extent of oversight insurance agents operate under at the state level.
The authors cite Missouri’s regulations as an example. An investment advisor or broker-dealer rep can be denied registration if they have committed a felony related a financial crime.
But insurance agents, who are not only registered but also licensed at the state level—the paper argues the ladder is a much higher threshold—can be denied a license if they have been found to have violated the “moral sentiment” of their community in any way.
That means they don’t have to have been convicted of crime to be denied a license.
“The bar to become an insurance agent is significantly higher than that to become securities registered,” claims the paper.
Insurance agents have to pass tests on their competency and “moral character” to be licensed.
Once licensed, every annuity application is reviewed for 12 points to see if the sale is suitable for the investor, according to the paper.
The paper also makes the case for the 6-percent one-time commission an insurance agent makes on a hypothetical $100,000 immediate annuity sale.
Compared to a fee-based advisor who charges 1 percent annually, a 65 year-old investor will pay double in fees before reaching age 80, without the guarantees of lifetime income provided in an immediate annuity.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
