On Thursday, the first of the lawsuits against the Department of Labor’s Fiduciary Rule will be heard by the District of Columbia District Court.
The plaintiff is NAFA, the National Association for Fixed Annuities, where I served as CEO until January 2015. One of the important aspects of the lawsuit is NAFA’s request for an injunction.
The lawsuit seeks a preliminary injunction to stay the rule, which is currently scheduled to become operational in April 2017 (other lawsuits also requested injunctive relief). An injunction is a remedy in the form of a court order that compels a party to do or refrain from specific acts.
According to NAFA’s website, “NAFA believes this action is necessary, not only to defend the interests of our members, but to protect consumers against excessive government regulation that will only hurt average working Americans trying to save for retirement.”
The lawsuit alleges the DOL rule is invalid on grounds that the agency exceeded its authority to regulate IRAs and that it improperly categorizes insurance agents as fiduciaries. The lawsuit further alleges that the rule creates a private right of action, which only Congress can do.
Americans for Annuity Protection is active and vocal about the harm this rule will cause to consumers seeking guaranteed income and protection from annuities. We are engaged with legislators, the DOL and legal experts to understand the rule’s practical implications and impact and help inform the department about areas needing more clarification or further review and guidance.
Last week, something changed. During the comment period and since the final publication last April, we’d been communicating with DOL staff and other experts on the rule, the BIC, BICE and Exemption 84-24 with questions and research and suggestions.
We reached out to the department to pose another question regarding compensation and an ERISA guidance memo on “reasonable fees measured using a market-base analysis.” As usual, the DOL was prompt in its reply to our request for a phone call. But, this time, we were told that they now needed to have their lawyers on the call “because of the pending litigation.”
We thought that highly unusual and unfortunate because answers to questions about compliance solutions are what the industry needs right now to ensure continued and uninterrupted service to annuity consumers.
It is unsettling to think we cannot continue to have open and informal discussions with the department. Adding a lawyer to this situation formalizes the entire conversation. We will keep you informed about any developments on this front.
So, what can you expect from the DOL lawsuits. If an injunction is granted, it may delay the rule’s April 10th implementation date and the Jan. 1, 2018 final compliance date. However, it may not. It may simply require the DOL to do something (say, for example, complete a full impact analysis) by a specified date, which may not delay implementation.
If the injunction actually delays the implementation of the rule it may be helpful to an industry scrambling to prepare for full implementation. However, it also could mean a harmful delay that impedes preparation and solutions.
Also, contradictory conclusions between any of the three courts would likely mean its escalation to the Supreme Court, whose makeup is unknown until the presidential election is decided.
Since any positive outcome is weeks, and in some cases months away, modifications to systems, processes, forms and other areas will need to be well underway by this fall in the event the legal outcomes are negative.
So that leaves us with this. What can advisors and agents do today to prepare their annuity business to succeed in a post-DOL rule world? Americans for Annuity Protection has three suggestions.
Create or Review Your Business Plan
Determine what customers you will serve and identify what services and products they will need and you will provide. Research what technology, marketing platforms and licenses, education, and or training will be needed to fulfill you plans goals.
And, last but certainly not least, do a complete analysis of your business revenue and create a new forecast based on your plan.
Michael Kitces says it best: “As the famous military saying goes, ‘no battle plan ever survives contact with the enemy,’ because the outcomes of battle contact itself change the context, and it’s almost impossible to predict what exactly will come next. Nonetheless, crafting a battle plan in advance is a standard for military leadership.”
Cleanup Your Records and Your Recordkeeping Process.
Whether you currently operate as a fiduciary financial planner or as in insurance-only advisor, you need to keep and maintain good records. This will be even more important going forward and is REQUIRED under the DOL fiduciary rule.
The SEC, FINRA, and most state insurance departments specify minimum requirements with respect to the records that advisors must make, how long those records and other documents relating to your business must be kept and in what format they may be kept.
If you haven’t already done so, get the guidelines from your regulator or your financial institution of choice (i.e., your RIA, broker-dealer or carrier).
Categorized and Communicate to Your Clients
Your clients will be hearing more and more about the fiduciary rule. As we get closer to the April implementation date, it is likely the noise will keep getting louder and louder. Develop a communication plan that addresses your business practices and standards.
Triage your customers in order of most likely to hear first, next and so on. Obviously, your clients with money in 401k (about 60 percent of the working population) will be hearing from their employers and their plan providers.
Since the rule imposes a huge disincentive to move money to an IRA (confusing disclosures and more paperwork for your customers and compliance and liability for you) it should not surprise anyone that 401k participants will be the first wave of the rule’s listeners. Also, identify your existing IRA clients and discuss your business approach with them.
Americans for Annuity Protection has sample letters and content exclusively for members. We also have some tried and true business planning templates created with annuity advisors in mind. If you are not a member join today.
Bottom line? What you can expect from the DOL fiduciary lawsuits is more change! And those who are best prepared will survive. Consumers need you and need your expertise on annuities.
Don’t disappoint! Learn more and keep up to date at www.aapnow.com.
Kim O’Brien is the vice chairman and CEO of Americans for Annuity Protection. She has 35 years of experience in the insurance industry. O’Brien served The National Association for Fixed Annuities (NAFA) for almost 12 years and led the organization to defeat the SEC’s Rule 151A.
Contact Kim at [email protected]
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