As DOL’s fiduciary rule stalls, Sen. Warren blasts advisors in scathing ‘kickbacks’ report

As the Department of Labor’s new fiduciary rule remains halted by two court rulings, Senator Elizabeth Warren (D-MA) last week released a new 22-page report detailing the findings of her investigation into insurance industry kickbacks, titled “Cancun, Cruises and Cash: How the Department of Labor’s New Retirement Security Rule Would End Insurance Industry Kickbacks that Cost Savers Billions.”

The new report revealed advisors’ “conflicts of interest,” according to Sen. Warren, which include trips to Cancun, luxury cruises on the Danube, a five-star resort in Mexico, and more extravagant incentives offered by insurance companies to employees in exchange for promoting plans that may not be in the best interest of their clients.

The DOL’s new Retirement Security Rule, which extends a fiduciary standard of responsibility to most annuity transactions, was published in the Federal Register on April 25. However, two lawsuits immediately followed, making a similar argument: The new rule must abide by the precedent set by a 2018 ruling from the Fifth Circuit.

The new fiduciary rule essentially expanded the definition of fiduciary under ERISA to include annuity sales, regulating that advisors act in the best interests of clients. However, Sen. Warren’s report identified that at least 29 annuity and insurance companies are offering agents perks – vacations and cash bonuses – in 2024 “in exchange for the agents to sell their annuity and insurance products,” said the report.

Sen. Warren, who serves on both the Senate Banking and Finance Committees, requested information from the country’s 15 largest annuity companies regarding their tactics.

According to the report, some of the companies that offer incentives for annuity and/or insurance sales in 2024 include: Americo, Ameritas Life Insurance, Corebridge Financial, EquiTrust and American Equity Investment Life Insurance.

The report’s key findings include:

1. Dozens of annuity companies are offering secretive incentives and rewards that undermine agents’ incentives to give the best advice to consumers. Sen. Warren’s staff identified that “at least 29 annuity and insurance companies are offering agents secret perks in the form of vacations and cash bonuses in 2024 in exchange for the agents to sell their annuity and insurance products,” said the report.
2. Annuity companies use third party organizations to obscure their agent payments. “Allianz claims that ‘Allianz Life does not offer sales contests to financial professionals … However, Allianz then admits that its affiliated broker-dealer, Allianz Life Financial Services, pays bonuses, etc. to other entities, including field marketing organizations,” according to the report.
3. SEC/NAIC “Best Interest” guidelines are not effectively eliminating conflict of interests. For example, the NAIC rule excludes the most important sources of a conflict for “advice on annuity products – the unfettered ability to earn more compensation by recommending some annuities over other annuities and other investment products,” said the report.
4. Companies hide behind dense, inadequate disclosures of conflicts of interests. For example, Pacific Life claimed that “such additional compensation, including its potential for conflicts of interest, is fully disclosed to annuity purchasers in the annuity product prospectus,” said the report.

Related: DOL fiduciary rule lawsuit expands, as 2 financial trade groups want it halted too

As the new report notes, “conflicts of interest among advice providers cost retirement savers as much as 20% of their retirement income over a lifetime, and conflicted advice on fixed-index annuities alone cost savers as much as $5 billion every year. As a result, retirement plan participants would save $55 billion over the next decade in fees with the implementation of the DOL’s new rule, and “investors rolling over into annuity products could save another $32.5 billion over the same period.”