DOL Sends IMO Fiduciary Rule Exemption To OMB

An exemption granting independent marketing organizations financial institution status under the Department of Labor's fiduciary rule has been sent to the Office of Management and Budget for review.

OMB has 90 days from Dec. 29 to review the details, though the review isn’t expected to take that long, an OMB official confirmed Wednesday.

Any changes requested by OMB’s Office of Information and Regulatory Affairs to the Labor Department document must be made within the 90-day period, the OMB official said.

The OMB review is the last step before the DOL receives the green light to publish the blueprint of the framework in the Federal Register.

The rule is expected to require IMOs to meet certain conditions in order to qualify as a financial institution. Issuing a class exemption would raise the profile of IMOs to one of a financial institution on a par with regulated financial product distributors like banks, broker-dealers, registered investment advisors and insurers for the purposes of the sale of financial products and advice into and for retirement accounts.

The status is critical for IMOs because a financial institution is required to guarantee that the terms of the best interest contract exemption (BICE) were upheld. The exemption is required for fixed indexed and variable annuities purchased with qualified retirement money.

Reserving is a possible requirement that concerns many IMOs. The DOL's reasoning is to have the reserves on hand for any potential judgment against sales that a court might determine violated the exemption. But some IMOs are concerned that the requirement could be so onerous as to render the exemption meaningless.

At least 20 IMOs have applications pending before the DOL seeking financial institution status. The IMOs annually sell billions of dollars’ worth of FIAs, which are on track for $60 billion in sales in 2016.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].