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DOL Reviews Annuity Exemptions in Fiduciary Rule


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This week, the Department of Labor requested information on the fiduciary rule giving some industry players hope that the sales of fixed indexed annuities (FIA) may be placed under a less stringent exemption. According to a recent InsuranceNewsNet article, DOL regulators implied that they might be interested in exploring the advantages and drawbacks of expanding the types of annuities covered under the Prohibited Transaction Exemption (PTE) 84-24, which is much less stringent than the Best Interest Contract Exemption, or BICE.

“Would it facilitate advice to expand the scope of PTE 84-24 to cover all types of annuities after the end of the transition period on January 1, 2018?” asked regulators on Thursday. Of course, the annuity community has answered with a unanimous YES. Additionally, regulators also showed interest in looking at the possible expansion of the definition of what constitutes a financial institution beyond banks, insurers, broker-dealers, and registered investment advisors (RIA). The expansion could mean the inclusion of more independent marketing organizations (IMO), which are responsible for the majority of the $60 billion worth of FIAs sold every year.

In April 2016, indexed annuities were included under the rigorous BICE along with variable annuities. Fixed annuities were excluded from the move. The DOL claimed that FIAs didn’t meet the standard required by the fiduciary rule to limit conflict of interests among financial advisors. Industry groups were quick to point out that IMOs were not addressed in the new rule, so regulators revised. The solution then presented set the standard for IMOs (to qualify as financial institutions) so high, that many couldn’t even contemplate an attempt. According to Judi Carsrud, government affairs director for the National Association of Insurance and Financial Advisors, regulators now need to either move all FIAs back to the 84-24 exemption or develop a workable exemption so that the majority of IMOs operating in the U.S. can continue to sell FIAs. “Or they can redefine what is a financial institution,” she added.

The request of information by the DOL in the Federal Register on Thursday doesn’t necessarily indicate how the DOL is leaning, rather that they are just complying with President Trump’s order to review the impact of the fiduciary rule on the marketplace.

“We’re still looking forward to working with the new (DOL) team and rolling up our sleeves,” said Carsrud. Only time will tell if FIAs will be moved back under PTE 84-24, like so many are hoping, or not.

Written by Rachel Summit

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