The DOL Rule Is Dead: What’s That Mean For Annuities?
July 5, 2018 by Ben Mattlin
In late June, after the Trump administration refused to defend it in court, the Department of Labor (DOL) fiduciary rule on retirement accounts was pronounced dead.
The final nail in the coffin came when the Fifth Circuit Court of Appeals issued a mandate to “vacate the fiduciary rule in toto,” as a court statement put it.
Some observers celebrated the death of a rule that required all advisors to put the interest of their clients first; others decried the reversal. Yet many found this latest change anticlimactic, at least so far—including some of the nation’s biggest annuities providers.
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“There is no going back,” said Craig Hawley, head of Nationwide Advisory Solutions, who added that surveys have shown that advisors consider a fiduciary model a boon to their practice.
Other insurers expressed their own nuanced spin on recent events.
“Jackson supports regulatory initiatives that empower consumers to access high-quality, impartial advice about how to grow and protect their savings, and effectively plan for retirement,” said Barry Stowe, CEO of Jackson Holdings, which includes annuity provider Jackson National Life Insurance Co.
“Consumers should have the choice of paying for financial advice and solutions on a commission or fee basis, with all the relevant facts plainly before them.” The DOL rule discouraged the commission model, requiring parties of such arrangements to sign a Best Interest Contract Exemption [BICE], fully disclosing all terms and fees.
Further complicating the question of what comes next is a proposal from the Securities and Exchange Commission (SEC) to create its own “best-interest” standard for broker-dealers, although the agency hasn’t exactly defined what it means by “best interest.”
“Variable annuities and fixed-indexed annuities will fare differently,” explained Marcia Wagner, an attorney at The Wagner Law Group in Boston. “Variable annuities are securities and therefore subject to the SEC’s proposed best-interest regulation, while fixed-indexed annuities are an insurance product, with respect to which the SEC cannot exercise jurisdiction.”
Both were included in the DOL rule, though other types of fixed annuities were not.
Lincoln Financial, another big annuities carrier, is “encouraged by the best-interest standard presented by the SEC,” said Will Fuller, president of annuity solutions for Lincoln Financial Distributors and Lincoln Financial Network, two units of the Lincoln Financial Group.
Fuller noted that annuities often fit well with clients’ best interests. After all, he said, annuities can offer “protected lifetime income that lives as long as they do, and ensures their retirement is as rewarding as they’ve planned for.”
If some industry leaders seemed unperturbed by the demise of the DOL rule, that’s partly because it’s already “changed the terms of the discussion and affected the way leading players modified their practices,” said Wagner. It’s unlikely, she added, that they will undo what’s been done.
Yet it’s also possible that the new SEC rules, when finalized (the proposal is open to public comment through August 7th), will in some sense go farther than the DOL rule. “There was a large group of consumers who were totally unaffected by the DOL rule because it addressed only ERISA pension plans and certain types of pension-type arrangements under the Internal Revenue Code,” said Wagner. “These individuals will be protected to some degree under the proposed SEC regulation.”
Wagner anticipated a range of proposals and counterproposals before the dust settles. “Until the fiduciary rule sorts itself out at the federal level, states may try to enact their own protective legislation,” she said.
At this point, the possibilities seem limitless. “On balance, the DOL fiduciary rule made it more difficult and expensive for consumers to access advice and solutions, including annuities, especially on a commission basis,” said Jackson’s Stowe. “We look forward to working with the SEC on its recent proposals, which are intended to enhance standards of conduct while preserving access to advice and a broad range of solutions offered on a commission and fee basis.”
Nationwide’s Hawley, meanwhile, reiterated his firm’s dedication to the fiduciary ideal. “Investors rate a fiduciary standard among the top three factors for choosing an advisor,” he said. “When you put consumers first, everyone wins.”
