Insurers will be given greater latitude than initially forecast in selling proprietary products, such as annuities, into investment accounts under the final fiduciary standard, or Best Interest Contract (BIC) regulation published by the Department of Labor today.
However, an expert on retirement income legal issues is reacting with great caution to the revised rule.
C. Fred Reish, a partner in Drinker Biddle's Employee Benefits & Executive Compensation Practice Group, says that while the DOL has made "significant changes" to the proposed rule, its structure is still the same.
Reish, based in Los Angeles, is chair of its Financial Services ERISA Team and chair of the Retirement Income Team. He explains that the foundation of the rule is a very broad definition of fiduciary advice.
"A consequence of that definition is that virtually all common investment and insurance sales to plans, participants and IRAs will be fiduciary acts," Reish said. As a result, the advisors will need to investigate the facts that are "relevant" to the circumstances of the retirement investor and make a prudent recommendation in the best interest of the investor.
In addition, Reish says, if the advisor is paid by commissions or can affect his compensation through his recommendations, the advisor must satisfy the conditions of a prohibited transaction exemption, probably the Best Interest Contract Exemption, or BICE.
"While the conditions have been liberalized, they will require more effort and expense," Reish concludes.
Keefe, Bruyette & Woods analysts pointed out in their initial thoughts on the rule the number of positive concessions and clarifications that were made.
The "one notable negative," KBW analysts said, is that indexed annuities were removed from the PTE 84-24 insurance exemption and moved into the BIC alongside variable annuities.
"We expect indexed annuity sales to be negatively impacted as result," noting that "this is also a modest negative for retail advisors that sell the product."
As for the positives, KBW analysts said this includes the BIC exemption, the 401(k) carveout, the proprietary products provisions and grandfathered compensation rules.
To continue reading, see the original story at LifeHealthPro.com.
Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader
Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
- Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
