House of Representatives Stivers and Cleaver letter to Secretary Acosta. This is a very big step forward in the FACC Campaign’s mission to ensure the fair treatment of FIAs under any implementation of the Department of Labor’s Fiduciary Rule. If you live or have a business in Georgia, please take a moment to send Senator Perdue a letter thanking him for his support and leadership. You can do so by simply clicking on the foregoing link. If you prefer to call him, his DC office number is (202) 224-3521 and his Atlanta number is 404-865-0087. The letter from Senator Perdue to Secretary Acosta urges DOL to make one very important revision to the Fiduciary Rule Exemptions which is to move FIAs back from the Best Interest Contract Exemption (BICE) to Prohibited Transaction Exemption 84-24 (PTE 84-24). By returning FIAs to PTE 84-24, FIAs would be grouped properly with other fixed annuities and not securities products. Subjecting FIAS to ill-fitting BICE requirements that are oriented towards the securities industry’s framework and practices would put these popular products at a severe disadvantage in the retirement marketplace and harm consumers’ ability to save conservatively with insurance guarantees of lifetime income and protection from market losses. Returning FIAs to PTE 84-24 would still offer consumer protections by requiring sellers to follow the impartial conduct standards that embody the Rule’s principal protections. But it would avoid unintended consequences of depriving consumers of one of the leading products available to attain retirement security. The FACC Campaign will continue to seek additional signatures from Senators and House members. Your role in that process is critical. Please stay informed by checking back on our website often. And thank you for being engaged and active in our efforts to protect these critical retirement products.]]>
The FACC Campaign is grateful to
Congressmen Stivers & Cleaver
and thanks them for their support and
thoughtful letter to Secretary Acosta!July 2017 The Honorable Alexander Acosta Department of Labor Secretary 200 Constitution Avenue NW Washington, D.C. 20210 Dear Secretary Acosta: We are writing to urge you to make one very important revision to the Fiduciary Rule (Rule) if it is not otherwise delayed or repealed. We believe fixed indexed annuities, otherwise known as FIAs, should be moved back from the Best Interest Contract Exemption (BICE) to Prohibited Transaction Exemption 84-24 (PTE 84-24). Each of us has been closely watching developments and appreciate the Rule has generated considerable controversy. Many of us have differing views about the Rule but we are all deeply committed to improving retirement security for our citizens in view of America’s deepening savings crisis. With that in mind, we all agree on at least one thing, which is that the Rule and related Exemptions, if they remain on the books, must be practical as possible to avoid unnecessarily and perhaps inadvertently hurting consumers or providers of financial services. One particular concern in that regard is the treatment of FIAs which we believe should be moved back from BICE to PTE 84-24. By returning FIAs to PTE 84-24, FIAs would be grouped properly with other fixed annuities rather than securities products, and would not be subject to ill-fitting BICE requirements that are oriented towards the securities industry’s framework and practices. By the same token, sellers of fixed indexed annuities would still be subject to impartial conduct standards that embody the Rule’s principal protections. FIAs are retirement oriented financial products which are popular with consumers because they provide opportunity for growth while still providing guarantees of principal and lifetime income options. FIA sales have been steadily growing over the last fifteen years and exceeded $60 billion last year. FIAs are popular because they fill an important niche by providing a conservative product for lower and middle class consumers who may not have the wherewithal or capacity to invest in riskier securities products. Our concern is FIAs will be at a severe disadvantage in the IRA marketplace if they remain in BICE when scheduled to take effect January 1, 2018. FIAs are sold primarily through independent insurance agents as part of the fixed annuity distribution system. As a practical matter, the independent insurance agency system does not fit the framework of BICE, which is built around the securities brokerage system. Unlike securities broker dealers who control securities agent activities and thus can serve as “financial institutions” under BICE, insurance companies offering fixed annuities do not control independent agents and cannot readily provide the warranties required of financial institutions by BICE. DOL recognized this very concern in its proposed rulemaking but has never adequately addressed the issue. These concerns are compounded by the fact that the securities industry has inherent litigation protections that are not available to the fixed annuity industry. BICE recognizes the securities industry can require disputes be resolved through alternative dispute resolution mechanisms such as FINRA arbitration. BICE also allows securities firms to protect themselves by requiring consumers to waive certain harsher remedies such as restitution and punitive damages. All these safeguards which are designed to balance consumer interests with those of the financial institutions are not available to insurance carriers because state insurance regulation does not generally allow for arbitration or other restrictions on remedies. The result is a very unlevel playing field under BICE tiled in favor of the securities industry which will potentially incapacitate the fixed annuity industry with excessive litigation costs. Congress is well aware of the attributes of FIAs and their value to consumers largely because of the adoption of the Harkin Amendment in 2010 as part of the Dodd-Frank Wall Street Reform and Protection Act. In that legislation, Congress essentially declared that any fixed annuity that satisfies state non-forfeiture laws – including FIAs – be treated as exempt from federal securities laws. While we appreciate that the Harkin Amendment was directed at the SEC and its attempts to treat FIAs as securities, we believe the import of that law should not be ignored here. It is our view that with BICE the Department is implicitly treating FIAs as securities contrary to the intent (if not the letter) of the Harkin Amendment. As long as FIA products satisfy the Harkin Amendment, it is our strong view the Department should treat them the same as any other fixed annuity under PTE 84-24. For all these reasons, we are asking the Department to reexamine its position on the treatment of FIAs and move FIAs out of BICE into PTE 84-24 or some more suitable exemption if the Rule and Exemptions are not otherwise delayed or repealed. We believe this is imperative so that the Rule and Exemptions are workable and fair for all concerned parties including consumers and financial services providers. Sincerely, Steve Stivers Member of Congress Emanuel Cleaver, II Member of Congress]]>
fixedannuitychoice.com and fill in your name and contact information, and click “sign petition”. In a matter of seconds, you can make your voice heard and make sure fixed indexed annuities aren’t treated like securities. It is important to ACT NOW! The Department of Labor is expected to make a decision any day on whether to adopt further delay of the rule’s implementation. Even though the rule itself is now in effect, and agents must satisfy so-called impartial conduct standards, our fight continues to stop full implementation of the rule and its exemptions . . . and get DOL to fix the treatment of fixed indexed annuities. Be part of our campaign! Sign the petition! Help yourself and help your clients! Thank you, Kim O’Brien]]>
Lots of Activity These Days The last few days have seen a flurry of activity! The most recent new items are:
- August 29 – Office of Management & Budget (OMB) approval of the DOL’s request for an 18-month delay to the Rule.
- August 30 – DOL issued an official announcement of the delay and has given 15 days for public comment.
- August 30 – DOL published Field Assistance Bulletin 2017-03 stating it won’t enforce a provision of the BICE’s arbitration ban.
And There’s Litigation TooFirst, and maybe foremost, we await the decision of the 5th Circuit Court of Appeals that presides over the Chamber of Commerce case. Our fingers remain crossed that perhaps that court will strike down the fiduciary rule in its entirety. The court could do a range of things that include upholding the rule, striking down the rule, or possibly remanding it to the agency for further consideration or revision. A decision could come out any day. Meanwhile, in the NAFA lawsuit, being heard in the D.C. Circuit Court of Appeals, Fidelity & Guaranty Life and MV Group filed a “friend of the court” or amicus brief, which asserts:
- The reasonable compensation standard is unconstitutionally vague; and,
- The sudden switch of FIAs to BICE was an arbitrary and capricious action by DOL creating a severely tilted playing field favoring the securities industry over the FIA industry.
What Does It All Mean?Well, despite these developments, in the big picture not too much has changed. The good is that DOL seems serious about the 18 month delay of the full exemptions. The bad is that the fiduciary rule is in force and agents must comply with 84-24 including the impartial conduct standards. The uncertain is everything else. So keep in mind:
- Advisors and agents are still required to adhere to impartial conduct standards when dealing with qualified funds.
- Whether fixed indexed annuities will end up under the BICE or PTE 84-24 is still very much in doubt.
- DOL’s latest guidance relates to its enforcement policy only on the class action limitation in the BICE and not on the Rule itself or requirements to adhere to Impartial Conduct Standards – i.e., it doesn’t really help insurance agents.
nothing. But, don’t think the silence means that victory is upon us – IT IS NOT! The news of the delay is a hopeful sign. However, the lack of information and continued deafening silence creates more uncertainty and confusion. As we blogged last week, there are many possible interpretations of what this means:
- DOL may be extending the June 9th versions of BICE and PTE 84-24 to July 1, 2019. This would mean the status quo remains in place for the next two years and additional requirements of BICE remain on hold;
- DOL could be proposing additional requirements during the interim period through July 1, 2019;
- DOL could be proposing changes to the BICE and PTE 84-24 exemptions to take effect on July 1, 2019;
- DOL and OMB may be putting the proposals out for comment which will cause more delay and uncertainty until the Department gets public input and makes final decisions.
The Shot Heard Across the Nation… …last Wednesday was the sound of a DOL proposal to delay further implementation of the fiduciary-rule exemptions until July 2019. The Department’s proposal to extend the Jan. 1 effective date for the remaining portions of the exemptions was first disclosed in documents released Wednesday in a court challenge Thrivent Financial for Lutherans v. Perez. Very limited information is currently available so nobody knows what DOL is proposing exactly – but the DOL Rule is hardly dead. We only know DOL proposed to the Office of Management and Budget (OMB) that three exemptions be amended – including BICE and PTE 84-24 – and that the title of the amendment says “Extension of Transition Period and Delay of Applicability Dates from January 1, 2018 to July 1, 2019.” It is a hopeful sign for sure even though its meaning is a bit murky. Most in the press and at trade associations are interpreting it to mean DOL will be extending the June 9th versions of the modified exemptions (BICE and PTE 84-24) to July 1, 2019. That means the status quo would remain in place for almost two more years while DOL continues to study the exemptions. It also means that during that period the additional requirements of BICE would remain on hold -which is the good news. However, there are other ways to read this. It is also possible that DOL is proposing additional requirements during this interim period through July 1, 2019. It is also possible DOL is proposing changes now to the exemptions that would take effect on July 1, 2019. These latter scenarios seem less likely but nothing can be ruled out given our history with this issue. And on top of all of that, these amendments are over at OMB, which means at this stage they are merely proposals, whatever they are, and they could still change. There is also word on the street that DOL may put its proposal for delay out for notice and comment. This would mean the proposed delay would remain merely a proposal for a period of time until the Department gets public input and issues a final rule concerning delay. So . . . as usual . . . there are lots of unknowns. What it really means is we cannot let our guard down. Keep in mind the fiduciary rule itself is now law. Keep in mind too that all annuity sales are currently subject to the impartial conduct standards. The FACC Campaign is going to continue to monitor the situation, work on our push to get FIAs into PTE 84-24 (for whenever these requirements ultimately kick in), and continue to consider possible best practices under PTE 84-24 such as proper disclosure and documentation.