Fiduciary Rule Rumors

Is the Department of Labor revisiting previous plans for a fiduciary rule? Some experts believe it is possible. 

On February 16 of this year, the Biden administration allowed the Trump’s  investment advice rule to take effect, but rumor has it that they plan to rework exemptions to look more like the Obama-era fiduciary rule, according to an InvestmentNewsNet article. 

The former fiduciary rule included significant restrictions and liability on the selling of annuities, which is traditionally commission-based. Fixed indexed and variable annuities would have been particularly targeted. The rule was thrown out in 2018 after a federal appeals court ruled on the side of the industry plaintiff.

“When EBSA rewrites the rule, which I believe they will, they may try to restore some of the 2016 rules provisions that were not specifically addressed in the 2018 court decision,” said Preston Rutledge, former assistant secretary of labor for the Employee Benefits Security Administration under Trump, at the LIMRA Retirement Industry Conference. 

“One example might be a return to the 2016 treatment of the prohibited transaction 84-24,” Rutledge added. “This was, in 2016, amended and partially revoked to no longer provide relief for transactions relating to indexed annuities and variable annuities. And this is an important exemption for the insurance industry.”

The new investment advice rules include Prohibited Transaction Exemption 2020-02, which was designed to allow fiduciary advisors to qualify for selling products or services, and be paid a commission for it, to qualified plan participants and individual retirement account owners. PTE 84-24 covers insurance agents and brokers, and has for years, which allows them to sell life insurance and annuities to qualified plans. 

Fred Reish, a partner with the law firm Faegre Drinker Biddle & Reath, has suggested three possibilities for potential changes that might be down the pike: 

  • Variable and fixed indexed annuities could be moved from 84-24 and placed in 2020-02. 
  • 84-24 could be amended to add several of the 2020-02 requirements, such as the Impartial Conduct Standards, which is a best interest standard, a reasonable compensation standard, and a requirement to make no materially misleading statements.
  • 84-24 could be revoked in its entirety, leaving 2020-02 as the only available exemption for insurance products of all kinds. 

“In addition, there is some discussion about 84-24 covering only commission compensation, meaning that other compensation, such as trips and awards, would not have an exemption,” Reish added. 

On April 13, the DOL released a set of FAQs that fed the rumors of a new fiduciary rule. The FAQs imply that further changes are likely, however DOL officials could not be reached for comment at the time of the article.

Written by Rachel Summit

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