The recently published final Department of Labor (DOL) fiduciary rule for IRAs (and a handful of other tax-qualified funds) sales is disturbing for an industry already fraught with challenges. Americans are underprepared for retirement in education and savings. Insurance agents are retiring faster than new agents are entering the market. Compliance has become ever tighter.
The final rule was developed in a nearly insurance-knowledge vacuum, as the DOL concentrated primarily on securities. As such, it is vague, sometimes self-contradicting, has omissions and was developed with suspect data. While its stated purpose is to protect Americans from conflicted advice on their pension funds even after they leave employer plans, it has the prospect of reducing accessibility to personal financial advice, harming hundreds of insurers, and tens of thousands of insurance agents. This is especially true as the DOL pivoted between the final draft and its release—they decided to include fixed indexed annuities, a purely insurance product, in the Best Interest Contract Exemption, an exemption designed for securities. This is yet another example of the seemingly inexorable trend to legislate by regulation and to regulate by adjudication, usurping our constitutional framework.
While the DOL’s approach to dividing the “annuity baby” is arbitrary and without merit, as well as creates more problems than it will solve, and effectively begs trial lawyers work it out; where there is challenging change, there is opportunity.
Lawsuits, legislation, executive action or conflicting SEC action may delay or modify the rule, set to be enforced April 2017, but waiting is not a strategy. CreativeOne will participate everywhere practicable, but find new opportunities for its mission of assisting and equipping advisors to provide protection, prosperity and peace of mind for Americans preparing for, and in, retirement.
The ruling’s required fiduciary responsibility is already embodied, in large part, in Investment Advisory Representatives required conduct of acting in the best interest of their clients. The ruling itself seems to be designed to facilitate the movement of qualified sales to that type of advisor, and to a documented approach to “best interest.”
Thankfully, CreativeOne began preparing for a structured, disciplined approach to ensuring a quality sale in the interest of clients. We built our own broker-dealer and registered investment advisor. We developed the premier turnkey asset management program in the industry, the first in the industry to fully integrate annuities as an asset class in order to improve clients’ portfolios to a new maximum efficient frontier using the modern portfolio theory.
There is no silver bullet to solve all the vagaries of the new rule, but partnering with a firm on the forefront of doing the best for a client is the best start a new or existing fiduciary can make, regardless of the eventual outcome. Americans need these solutions, because waiting and hoping for something different to happen is not a strategy.