According to the Department of Labor, the purpose of their recent fiduciary rule is to protect consumers. Kim O’Brien, formerly of NAFA and the current vice chairman and CEO of Americans for Annuity Protection (AAP), disagrees with the DOL’s claims. In an Insurance News Net commentary, “DOL Rule Harmful for Americans,” O’Brien lists the reasons that she hopes this fiduciary rule will be overturned in favor of consumers.
She is thrilled with the multitude of lawsuits that have been filed against the DOL. There are at least five different groups suing the department with lawsuits in Washington D.C., Texas and Kansas. Their hope is that the Rule will be delayed until there is a new President. They would like for Congress to deny the DOL’s rule and come up with consumer protection that takes away excessive fees and acts in the best interest of consumers. While the DOL says that this is their ultimate goal, O’Brien, the AAP and many other groups do not believe that to be the case.
The AAP believes that consumers should have access to advisors without having to spend a lot of money. Their argument against the DOL rule is that the rule favors fee-only advisors, something that many middle income Americans cannot afford. O’Brien worries that consumers will use their small savings to pay for an advisor and lose the money they had for an emergency home repair or medical issue. Fee-based planners are important to retirement planning, they just aren’t affordable to everyone who would benefit from using them. The worry is that consumers will start planning on their own or using a money management program that does not take their individual needs into account.
O’Brien’s second argument against the DOL rule is that consumers should have access to low-cost annuities so that they can “turbo-charge” their retirement savings. She says that fixed indexed annuities are currently the most popular annuity type chosen, something that will likely change after advisors have to meet BICE guidelines and change their selling process. She lists study results from the Center for American Progress, which found that 401k plans have fees that are way too high. The CAP says that a logical solution for consumers would be a combination plan that included the benefits of 401k plans and the benefits of pensions. O’Brien says that this suggested plan almost exactly matches a fixed annuity product. It protects against losses in the markets, pays guaranteed lifetime income, and acts as a cost-effective defined contribution plan.
Many of the arguments against the DOL rule say that the department simply did not do accurate research before proposing these changes. The article says that the majority of research was done on mutual funds, even though annuities are the products most impacted by the fiduciary rule. O’Brien and the AAP say that consumers deserve better and that there should be comprehensive research and analysis done on the effects of annuity advice before such a blanket rule is introduced. They said that there was not even a single study done on how annuity advice affects consumers and how this rule would change that. They accuse the Department of Labor of getting their information from media and biased lawsuits. They’re asking Congress to ensure that better research is done before making rules that affect consumers’ savings and the products they use to protect their future retirement.
Finally, the last request for consumers is for them to get advice that is easy to understand and clear to the consumer eye. Disclosures are already complicated and long and the DOL rule added in BICE requirements and a number of other disclosures to this already long list. Adding paperwork does not not help consumers better understand their retirement options and is likely to deter consumers from even looking at annuity products. The last thing that Americans need is something to deter them from saving and purchasing products that will help them guarantee retirement income. There are four different sets of standards to be followed based on the new guidelines. Variable fee advisors will follow the Best Interest Contract Exemption (BICE) guidelines. Level fee advisors will follow different guidelines that some refer to as BICE-lite. Different guidelines will also be followed for regular fixed annuity sales, IRAs, and 401k fiduciary advice. This seems confusing for consumers, to say the least.
The Americans for Annuity Protection and many other groups believe that the DOL’s fiduciary rule is anti-consumer, despite its claim as a consumer protection rule. They are hopeful that Congress will delay or overturn the rule so that something more consumer friendly can be issued. The AAP believes that advisors are crucial to Americans’ successful retirement planning. Many products can aid in retirement planning, but annuities are the only way to bridge the retirement income gap that has come from the fall of pensions and the decline of Social Security. The AAP is hopeful that annuity advisors will be able to continue their services without consumers being hurt by new guidelines from the DOL.
Written by Rachel Summit