Commentary
Recently, Americans for Annuity Protection launched an “ICE the BICE” campaign to encourage the Trump Administration to delay the DOL Fiduciary Rule because of its complex and confusing (often conflicting) requirements that will harm consumers.
The reason the delay makes sense are numerous, but here are the highlights:
The industry is struggling to comply by April 10, but still lacks clear direction from the DOL regarding disclosure and compensation. Making matters muddier, the administration issues an Executive Order that freezes new or pending regulations.
Since its effective date was June 7, 2016, that eliminates the DOL rule from being either “new” or “pending.” However, there still may be indirect implications. Under the order, it is questionable if the department is permitted to even issue further guidance (FAQs) and whether the Proposed Exemption for Financial Institutions may be allowed to move forward.
This uncertainty causes total confusion. Thousands of financial and insurance services businesses may decide against advising consumers about the safety and protection of qualified annuities and the benefits of moving money from an employer-sponsored plan to a guaranteed annuity or life insurance product.
The rule is a patchwork attempt to apply a best interest standard to retirement savers. First, the rule only applies to qualified money. Since many Americans have both qualified and non-qualified money, they will be inundated with different sets of disclosures and documents that will be confusing and daunting for most modest savers.
Annuity applications and disclosures are already about 30-40 pages. The mounds of paper they will now be required to read and understand will now be closer to 50-60 pages. More pages of disclosures, often written in highly technical language, does not help consumers.
Second, the rule treats annuities differently depending on their interest crediting method. Americans often use (or advisors recommend) more than one type of annuity for diversification or income protection. That means two sets of differing disclosures and documents to review for each recommendation. Again, a daunting and confusing proposition for most Americans.
Aggravating these problems for Americans struggling to save money is the 401k industry. A recent report found that a significant portion of employers switched to a stable value or government money market fund in response to SEC reforms.
Apparently, employers have taken the unprecedented step of mixing up “safe” investment options offered in defined contribution plans in response to new rules that went into effect last October.
According to the report, the Securities and Exchange Commission's rules instituted new investor safeguards for money market mutual funds that included special fees and redemption restrictions, as well as a floating net asset value.
The changes have incentivized plan sponsors to adopt different funds that aren't subject to the new restrictions, the report states. The SEC issues consumer safeguards and the 401(k) industry wiggles out of them by switching up its fund offerings? And, this helps consumers?
It is too early to tell if these new funds will perform better or worse for customers, but the report does tell us that money funds have yielded negative returns for investors net of fees over the past several years and that stable value funds have been yielding between 1.5 and 2.4 percent, roughly, net of fees.
So, on the surface, it may be slightly better news for consumers … except wait … a retirement plan advisor quoted in the report cautions that they are complex vehicles that require much adviser due diligence. Wow, IF a consumer can figure out the fund to save in and IF the fund doesn’t lose money and IF the fund makes money and keeps pace with inflation – this is terrific news! NOT!
Where is the WIN-WIN for the consumer? Without strong 401(k) plans and fund choices or the certainty and protection of guaranteed insurance choices, how can Americans feel confident about their financial future?
Americans for Annuity Protection urges you to TAKE ACTION and ask your representatives and President Trump to delay the DOL Fiduciary Rule. The annuity industry is working hard to comply with the rule by April 10th, but there are still hundreds of questions the DOL has yet to answer.
The first DOL FAQ issued last October created even more questions and didn't address substantially more. The DOL even acknowledged these problems by stating in the FAQ they would delay of the execution of a Best Interest Contract until January 2018.
It is unlikely that the best interest standard is going to go away. The key offices we talk to on the Hill tell us that there is little chance for more than a “delay and some fixes.” One Republican office said that “no one has the stomach to repeal the Fiduciary Rule, but we do see that it is unworkable in its present form.”
These unworkable problems, if left unfixed, will leave consumers with fewer retirement savings choices and retirement savings advisors. The DOL created the rule without a clear understanding of the annuity marketplace and consumers will be more confused than ever unless we clean up the requirements in this rule.
We ask you to notify the administration and state your support of a delay so we can make this rule work for consumers.
Kim O’Brien is a 35-year veteran of the insurance industry specializing in guaranteed annuities and life insurance. She is the current CEO of Americans for Annuity Protection and Founder of AssessBEST, Inc., a sales and compliance software system. Visit www.AAPnow.com or www.AssessBEST.com for more information.
Contact Kim at kobrien@innfeedback.com.
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