Time to talk (again) about our industry’s favorite topic (not really) … the Department of Labor’s (DOL) fiduciary rule.
First, some of you may be thinking that there’s nothing new to talk about, but some may be asking what the DOL fiduciary rule is to begin with. I will recap the rule (specifically, PTE 84-24 related to business submitted), cover where we are today, discuss your obligations are under the rule, and what we may expect in the future.
On June 9, 2017, parts of the DOL’s fiduciary rule became effective, and with it, new requirements to follow the DOL’s impartial conduct standards. With our government pursuing deregulation, much of the original requirements for the rule were delayed, but not rescinded. The June 9 implementation required financial professionals to make certain disclosers to customers. Financial Independence Group and many insurance companies created template disclosures statements to help fulfill this requirement.
The disclosure statement is a required document that spells out key items that our customers must be informed of prior to a transaction involving qualified money (both initial purchases and subsequent ones). This document discloses things such as the agent compensation, various material conflicts of interest, product fees, and expenses to name a few key elements—all required under PTE 84-24.
The June 9 requirements were originally set to end on January 1, 2018, and full compliance with all parts of the extensive DOL fiduciary rule were to be in full effect. However, an additional delay was put in place back in November and now full compliance with the rule is set for July 1, 2019. Please note, this delay does not apply to our obligations that were set on June 9. Everything required as of June 9 is still in place until full compliance is mandatory come mid-2019. This disclosure statement is absolutely required to be completed and given to customers, or you’ll find yourself in direct violation with the DOL’s mandate.
In our current state, the obligation set by the DOL for completing the disclosure statement placed the responsibility solely on financial professionals. Insurance marketing organizations (IMOs), financial marketing organizations (FMOs) and insurance companies did not have an obligation to gather this information. However, you should know that some insurance companies have begun testing for compliance with the disclosure statement requirement.
Insurance companies are reaching out to financial professionals and are requesting evidence of disclosure statement completeness to ensure the requirement is fulfilled. Some insurance companies have offered customers penalty-free surrenders in instances where the disclosure statement wasn’t completed. In these instances, commission charge-backs occur, and you can imagine it’s embarrassing for financial professionals to explain the situation to customers.
While the full force of the DOL’s fiduciary rule is on hold until mid-next year, we may not be fully out of the woods in the short-term. Keep in mind that individual states regulate the insurance industry. Some states don’t agree with the federal government’s deregulatory stance and have stated that they may formulate their own versions of a fiduciary rule. Naturally, this isn’t a good scenario for ones who live near a border with other states as it’s unlikely these rules would have total uniformity. Additionally, for folks registered in the securities industry, the SEC and FINRA have mentioned that they too intend to work on their versions of a fiduciary rule. The convergence of all these regulatory areas will make for interesting planning.
Finally, where does all this end up? It’s still anyone’s guess what’ll happen come July 1, 2019. Most expect at least a multitude of changes to occur to the DOL’s final rule.
Some expect that our current disclosure environment will stay in perpetuity, which is not necessarily a bad thing; and it’s much better than what we’d originally anticipated. Even if the DOL’s rule eventually is taken apart and struck down, the fiduciary rule as a concept and theme is never going away. We will likely have some states, other regulators and perhaps the NAIC weigh-in and create something of their own.
At Financial Independence Group, we will keep you up-to-date on any changes that you should know to help you prepare.
We will share more DOL news and information as it becomes available. As always, should you have any compliance questions, we’re always here to help. Please feel free to send an email to: firstname.lastname@example.org.