FOR THOSE OF YOU CONCERNED ABOUT THE DOL’S FIDUCIARY RULE #QuickInterview
March 14, 2022 by Sheryl J. Moore
FOR THOSE OF YOU CONCERNED ABOUT THE DOL’S FIDUCIARY RULE. I have been interviewing my friend Kevin Mechtley from Sammons Financial Group Companies, who is an expert on this topic.
When I asked him to sum up the rule, here is what he had to say:
Sure, nothing easier than summing up thousands of pages of ERISA rulemaking into a short paragraph, Sheryl. 😀 First, I would say it’s important to break up the discussion about the Fiduciary Rule into two frameworks, because reporting on this can sometimes be confusing. The easiest way to do so is to think of it as the “Trump Rule” and the “Biden Rule.” The Trump Rule (drafted by the Trump DOL), which fully went into effect on February 1st, 2022, effectively broadened the scope of the previous 5-part test for determining “who” qualifies as a fiduciary under DOL rules. As a result, producers who previously didn’t satisfy the test for fiduciary may now do, even inadvertently, and the receipt of a commission in connection with a qualified rollover or sale will be viewed as a “prohibited transaction,” necessitating additional compliance steps. In order to continue receiving commissions or other compensation in the qualified market, producers will now need to satisfy the terms of a “prohibited transaction exemption” or “PTE” – and the Trump Rule introduced PTE 2020-02 as an avenue to do so. However, many in the insurance space have dusted off an older exemption, PTE 84-24, which fits the independent producer model much better. The “Biden Rule,” on the other hand, refers to the ongoing review by the Biden Administration’s DOL to consider additional changes to the fiduciary test as well as revisions to PTE 84-24 and PTE 2020-02. Though we do not have a formal rule yet from the Biden DOL, many believe it could be coming in the near future, so we are hard at work doing our best to ensure a workable outcome to any such rulemaking.
When I asked him what the biggest change is, that will take place as a result of the rule, he had the following to say:
In some ways, producers have become accustomed to regulatory change over the past several years. Whether it was the 2016 DOL rulemaking, Regulation Best Interest at the SEC, or the new NAIC Model #275 “best interest” rules, I think a lot of producers who make their living in this space understand that change is constant, particularly as it relates to regulation. The good news is that nearly all producers are already making recommendations in the customer’s best interest or they wouldn’t have them as a customer. The key, then, is really just making sure the producer is walking through the steps in the process to comply. That means being intentional about determining if the fiduciary test has been tripped and if so, making sure that a Prohibited Transaction Exemption (PTE) is followed. For most independent agents, this means having a PTE 84-24 process nailed down, including presenting that disclosure and acknowledgment form in conjunction with the sale. For those leveraging PTE 2020-02, it means following the financial institution’s specific rules in place for compliance. It sounds elementary, but at the end of the day, I think it’s just about being intentional with compliance.
I asked him what advice he had for advisors on the Department of Labor’s Fiduciary Rule; here is what he had to say:
Is this where I get to make the plug to be sure to check out our DOL producer resource page if you’re contracted with us? Otherwise, my advice would be to make sure you have a good understanding of what the rules require and the context behind them and then just take the steps to implement it into your process. I do understand the temptation to throw your hands in the air in frustration with the DOL-ON-DOL-OFF-DOL-ON-DOL-OFF we have seen over the past several years, but DOL is most certainly ON right now and it’s important to do your best to comply. Also, if you work with a broker-dealer or other financial institution, be sure to reach out to them to find out what specific compliance steps they require.
Check out some interesting tidbits about Kevin:
-sjm
