Consumers Need Harmonized Fiduciary Rule

In a recent Bloomberg Law article, Jim Jorden, a partner with Faegre Drinker Biddle & Reath LLP, reviewed the Department of Labor’s (DOL) latest fiduciary effort, a proposed exemption to permit investment advice fiduciaries to get paid. With more Americans living longer and needing guaranteed lifetime income offered by annuities, this DOL effort can affect consumer access to — and information about — annuities.

Mr. Jorden is right – the DOL has more work to do.

He notes that, much like recent actions by state and federal regulators, the proposal includes a “best interest” standard. The Securities and Exchange Commission’s (SEC) Regulation Best Interest rule went into effect in July. The states are beginning to adopt the National Association of Insurance Commissioners’ (NAIC) new model best interest regulation.

While the DOL proposal is based on the SEC’s rule, Mr. Jorden is correct that “it does not ’align’ with the NAIC standard due to material differences in insurance regulation.” “Even more troubling,” he finds the DOL’s guidance reinterpreting the definition of a “fiduciary” results in the application of ERISA rules to recommendations by insurance agents to consumers “not previously considered fiduciary advice.” He observes that the DOL’s “comments suggest that a ‘fiduciary’ label may be imposed on transactions in which an insurance agent … receives compensation, not for that ‘advice,’ but for the sale of the annuity.”

Mr. Jorden’s conclusion is spot-on: this misalignment and reinterpretation “would subject some insurance sales transactions to fiduciary status Congress never intended, and to an exemption process that simply does not fit.” He added, “True alignment requires the DOL to clarify that fiduciary duties do not automatically confer upon insurance agents who are compensated solely to sell annuities in an IRA rollover transaction.”

The DOL should work toward a harmonized fiduciary rule that is consistent with the objectives of the SEC and NAIC. As Mr. Jorden says, “a rational set of rules which protect customers and at the same time permits the marketplace to continue to provide access to both annuities and securities serves to both protect and benefit the public.”

I could not agree more.

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Jim Szostek

Jim Szostek

Jim Szostek is Vice President & Deputy, Retirement Security at the American Council of Life Insurers (ACLI). He helps guide ACLI policy on legislation and regulations affecting the U.S. retirement system. Prior to joining ACLI in 2008, he held positions at CIGNA and The Hartford.
Jim Szostek

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