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DOL – Fiduciary Rule – Media

2010s

  • 2016 04 – Morningstar – New Fiduciary Rule More Pro-Investor Than Previous Iteration – [Scott Cooley] – [VIDEO-YouTube-05:04]
  • 2016 0628 – Morningstar – The DOL Fiduciary Rule: Winners and Losers – [Michael Kitces] – [VIDEO-YouTube-09:50]
    • RIAs
    • Products Distribution vs Advice
    • 2 – Training
    • 3 – CFP, Broker-Dealer – Fee-Based – 1990s – SEC – Hybrid Brokers-RIAs, Level-fee based Fiduciary Exemption
    • 4 – Products – Winners and Loser – Indexed Funds – Low-Cost – Fiduciary not purely a Cost issue, Prudent Advice for Reasonable Compensation – Losers – High-cost – redistribution. Performance / Outcomes – Sales Force 
    • 7 – Annuities – 
  • 2016 1219 – Mark Bruno – Ed Slott: The DOL fiduciary rule is a game changer for financial advisers – [VIDEO-YouTube-02:51]
  • 2018 0718 – InvestmentNews.com – State insurance commissioners don’t include life products in their annuity suitability reform, by Mark Schoeff Jr. – [link]
    • “We see no rationale for applying a best-interest standard or ‘suitability-plus’ standard of care to a fixed-indexed annuity transaction but not to an indexed universal life insurance transaction, or for applying a best-interest standard of care to a variable annuity transaction but not to a variable life insurance transaction,” the Center for Economic Justice wrote in a June 20 comment letter to NAIC.
    • NAIC – “That is outside the scope of our annuity suitability rule,” said Iowa insurance commissioner Doug Ommen, vice chairman of the NAIC annuity suitability working group. “I expect that we will have further discussion about that issue.”
    • Industry – The life insurance industry also is resisting expanding the NAIC rule to life insurance.
    • ACLI – “Including life insurance in the model regulation is unnecessary because life insurance sales practices are already subject to comprehensive state laws and regulations which assure that life insurance products are sold consistent with the best interest of consumers,” J. Bruce Ferguson, senior vice president for state regulation at the American Council of Life Insurers, wrote in a May 29 comment letter. – <WishList>

2020s

  • 2021 0602 – Doug Andrew – 3 Dimensional Wealth – What Is The Fiduciary Rule In Financial Services?  —  [BonkNote]  —  [VIDEO – YouTube-13:09]
    • [Bonk: LASER Fun = Indexed Universal Life Insurance]
    • 2 – Hidden Agenda – 
    • – Who is the best to look out for their own best interest, decision.
    • 3-4 – 2008 – IRAs, 401ks – Lost money – 40%
      • “I could show you how to protect yourself to never lose again when the Market goes down.”
    • Taxes – High or lower in the future
    • 5 – Convert money to tax-free
    • 5 – creating predictable income
    • 4% rule
    • 6 – Hidden Agenda of the DOL –
      • 7 – CFPB – Richard Cordray – 
    • 9 – 30% into US treasuries
    • 10 – I’ve never recommended people invest in a 401k or IRA – 
    • Invest in the LASER Fund
    • 11 – The LASER Fund will knock the socks off of a 401k or IRA
  • 2024 0111 – InsuranceNewNet.com – DOL on a ‘crusade to ban commissions’ with fiduciary rule, speaker claims, by John Hilton – [link]
    • Commissions-based compensation is the backbone of the independent distribution of insurance products and is threatened by the proposed Department of Labor fiduciary rule.
    • And that is the DOL’s intent, said Marc Cadin, CEO of Finseca, who testified Wednesday at a House Capital Markets Subcommittee hearing on the rule.
      • “The department is on an ideological crusade over the last 13 years to effectively ban commissions,” Cadin said. “That’s why they continue to come back and back and back with regulations that are so punitive that it will literally make it impossible for our members to do their jobs.”
    • Bradford Campbell, partner, Faegre Drinker, headed the Employee Benefits Security Administration from 2006 to 2009 under President George W. Bush. EBSA is the agency determined to expand the fiduciary standard.
      • Congress allowed the Labor Department to have authority over workplace retirement plans because, in many cases, someone else is making crucial decisions for workers, Campbell explained.
      • Through its fiduciary rule, the DOL is “seeking to export the rules that were designed for this special employer-provided situation into the $13 trillion retail marketplace for individual retirement savers that Congress never intended to have apply in that space,” he added.
  • 2024 0417 – David Macchia – John Hilton: DOL Adds Significant Legal Liability to Producers – [VIDEO-YouTube-01:49]
    • 2024 0417 – InsuranceNewsNet.com – DOL fiduciary adds significant legal liability to producers, panel agrees, By John Hilton – [link]
  • 2024 0425 – ThinkAdvisor.com – DOL Fiduciary Rule Add-On Could Boost Annuity Distributors’ Clout, By Allison Bell – [link]

ERISA Retirement Income Working Group – (A) – NAIC

  • “ERISA Retirement Income – https://naic.soutronglobal.net/Portal/Public/en-GB/SearchResults
  • 2012 NAIC Proceedings
  • 2013 NAIC Proceedings
    • 2013 Summer
      • ERISA Retirement Income (A) Working Group Aug. 24, 2013, Minutes (Attachment Four) …… 6-19
      • American Council of Life Insurers (ACLI) Guiding Principles on Improvements to U.S. Department Of Labor (DOL) ERISA Annuity Selection Rule (Attachment Four-A) ………………………………………………….. 6-23 
    • 2013 08 – Report – NAIC – State of the life insurance industry: implications of industry trends
      • Obersteadt, Anne Bruning, Larry Cude, Brenda J DeFrain, Kris Fechtel, R. Brian Hall, Shanique (Nikki) Karapiperis, Dimitris Melnyk, Andrew Mazyck, Reggie Niehaus, Greg Nordman, Eric C Ramge, Bruce Ruch, Guenther Schutter, Karen Schwarcz, Daniel Wilkinson, Jeremy 
  • 2014 NAIC Proceedings
  • 2015 NAIC Proceedings

DOL – EBSA – 1210-AB32

  • Brian H. Graff – The American Society of Pension Professionals and Actuaries (ASPPA), the National Association of Independent Retirement Plan Advisors (NAIRPA), and the Council of Independent 401(k) Recordkeepers (CIKR) – 4p
    • <WishList> – A recent survey of plan sponsors reported that 60 percent of small business plan owners indicated they received investment advice on the plan. Well if that’s ERISA investment advice, what are we all arguing about? That would mean that almost two thirds of small plans are getting served by a fiduciary advisor.
      • Of course, what we believe is that the investment advice most of these small business plans are receiving is actually non-ERISA investment advice, whatever that means–which is exactly the point.
    • When a broker/advisor is helping a small business owner set up a 401(k) plan and says to the owner “these are the 20 investment options that you should offer in your plan,” that owner naturally thinks he or she is getting advice. If you never heard of the current 5-part definition, wouldn’t you? In our members’ experience, small business owners are rather surprised when they are informed that the “advice” they have received for their ERISA-covered 401(k) plan is not actually ERISA-covered investment advice.
    • Marketplace confusion about the roles and responsibilities of brokers/advisors is not a new issue and is definitely not limited to retirement plans. The SEC recently issued a study recognizing that recipients of advice are often confused about the duties and obligations of the persons providing advice.
      • The issues and implications of advice given to ERISA plans are very different than retail-level advice. For instance, advice given to a plan sponsor directly impacts other individuals, namely participants, and thus it is appropriate for the Department to develop standards specifically designed for ERISA
        plans.
    • In these instances, what we believe is most important to be disclosed to recipients of advice are three things:
      • 1) that the broker/advisor is NOT acting as an ERISA fiduciary and thus the advice given is not afforded the protections of ERISA;
      • 2) that the broker/advisor’s advice may not be impartial since he or she is compensated by the provider of the investment options being considered and the amount of the compensation may be affected by the investments selected; and
      • 3) the amount of compensation the broker/advisor is reasonably expected to receive based on the investments selected, which ties into what will already have to be disclosed under the Department’s new ERISA section 408(b)(2) regulations.
    • We believe what we are suggesting would address the current confusion of plan sponsors and would level the playing field between those providing advice that are currently ERISA fiduciaries and want to be and those that are NOT ERISA fiduciaries and don’t want to be. In other words, if a broker/advisor provides to a plan what any layperson would think is advice, the broker/advisor will either:
      • 1) be subject to the duties and responsibilities of an ERISA fiduciary; or
      • 2) disclose they are not acting as an ERISA fiduciary and that their advice may not be impartial due to compensation received from the investment providers.
      • That’s it. What could be more clear and certain than that!
    • APPLICATION TO IRAS
      • The proposed regulation, as currently written would apply to IRAs. Further, the proposed regulation asked for comments on whether the definition of investment advice should extend to recommendations related to taking a plan distribution, namely IRA investments. We strongly recommend that the regulation should not apply in either case.
      • If the Department decides to extend these regulations to IRAs this is what will happen. Players in the retirement industry who are more formally regulated with extensive compliance departments, like the firms represented by my colleagues on this panel, will comply with the rules, and those less formally regulated, who know there is no practical enforcement of the rules, will choose not to comply. While responsible firms will have limitations on their ability to distribute IRAs, less responsible firms will practically have free reign giving them a competitive advantage on an uneven playing field. Consumers will be exposed to significantly greater risk as a consequence.
      • Further, if the Department chooses to apply the definition of investment advice to plan distributions, including distributions to IRAs, retirement plan service providers who already have existing relationships with participants will be severely hampered from discussing IRA options with them. These service providers have done an excellent job building programs to work with employees approaching retirement to encourage them to rollover their retirement savings and prevent leakage from the retirement system. The IRAs they offer have investment options that are generally consistent with those available to the employee in the plan, are high quality and have reasonable fees.
      • If these service providers are effectively precluded from offering IRAs to employees, that means participants will be potentially left exposed to less responsible vendors. Making it easier for some vendors to offer retirees IRAs invested in viatical settlements is not a result anyone should want.
      • Some people in our industry have described the IRA market as the Wild West. If you apply these regulations to IRAs, you will, metaphorically speaking, be taking the guns away from the good guys leaving only the bad guys with guns. Forgive me, but that wouldn’t be a fair fight!
  • Aon Hewitt Statement – 3p
    • With Americans’ retirement income needs in mind, we applaud the Department for moving to update the definition of fiduciary. In particular, Aon Hewitt wishes to focus its testimony this afternoon on the question that the Department posed in the preamble to the proposed regulation:
      • “Whether and to what extent the final regulation should define the provision of investment advice to encompass recommendations related to taking a plan distribution?”
    • As discussed in our comment letter, we believe that the Department should include in the definition of investment advice any recommendation made to a participant to take a plan distribution of the assets in his or her account because:
      • A participant’s decision to take a plan distribution is comprised of two significant decisions affecting a participant’s plan assets, namely:
        • (1) whether to liquidate current investments, and
        • (2) how to manage the distribution of the funds; and
      • Failure to include distribution advice under the final regulation may result in the unintended consequence of creating a bias towards a recommendation to take a distribution because an advisor could both avoid ERISA fiduciary status and also recommend an investment in which the advisor has a financial interest.
    • A decision to take a plan distribution is comprised of two smaller but significant decisions.
      • First, the participant must decide whether to liquidate current investments. Investment decisions to buy or sell a particular plan investment option are at the core of a participant’s management of his or her plan account.
      • Second, a participant must decide how to manage the distribution of the funds from his or her plan account, including the time, manner, form, and future custody of the plan distribution. The decision of where to invest assets outside of the plan and to whom a participant should entrust with custody of those assets is a critical component of the participant’s decision. A participant must make this decision, prior to the actual distribution, while the funds are still plan assets.
    • In Advisory Opinion 2005-23A (December 7, 2005), the Department decided that a recommendation to take a distribution does not constitute investment advice because the assets will be invested outside of the plan.
      • However, at the time the advisor provides a distribution recommendation the assets in question are still plan assets.
      • Therefore, differentiating between a recommendation to invest in plan options or to invest outside of the plan creates an inconsistency in the application of the ERISA fiduciary rules.
      • Why should the advice to liquidate an investment position and reinvest in another investment option within the plan be treated any differently than a recommendation to liquidate an investment position and then take a distribution to be invested outside of the plan? This inconsistent position appears to create a potential bias toward a recommendation to take a distribution because an advisor could both avoid ERISA fiduciary status and also recommend an investment in which it has a financial interest.
    • In short, we view the application of fiduciary standards to advisors who recommend plan distributions as a logical application of ERISA’s fiduciary rules, and certainly in the best interests of participants and beneficiaries.
    • Costs and Benefits Related to a Comprehensive Definition of Investment Advice
      • By extending the regulation to include the recommendations to take a distribution from the plan, we believe the associated costs would be minimal and that the benefits to participants and beneficiaries would greatly outweigh those costs.
      • We also anticipate that treating all recommendations relating to the application and management of plan assets consistently may result in more participants retaining their assets in their employer-sponsored plans because the level of steerage and inappropriate advice will be reduced.

DOL – Fiduciary Rule – Outline

  • 2015 – DOL / EBSA – Definition of Fiduciary; Conflict of Interest Rule-Retirement Investment Advice and Related Proposed Prohibited Transaction Exemptions; Hearing and Comment Period Extension – Posted by the Employee Benefits Security Administration on Jun 17, 2015 – regulations.gov/document/EBSA-2010-0050-0205
    • EBSA-2010-0050-0205
    • public hearing on August 10, 11, and 12, and continuing through August 13, 2015 (if necessary)
    • The comment periods for the proposed rule and six proposed prohibited transaction exemptions published on April 20, 2015 (80 FR 21928, 21960, 22004, 22034, 22010, 22021, and 21989)
  • 2015 0527 – Retirement Savings Protections – [VIDEO-CSPAN-01:45:53]
    • Jeffrey Zients spoke about the Department of Labor’s proposed new rules to protect workers’ retirement savings. The rules would be similar to but more flexible than a 2010 proposal that was withdrawn by the Labor Department after complaints from Wall Street institutions.
    • Following Mr. Zients’ keynote speech, a panel of current and former regulators, financial officers, and lawyers participated in a discussion about the potential policies. They focused on the protections they could afford, and the potential unintended consequences that could result from their implementation. Former Representative Bentsen made concluding remarks.
    • “Champions, Critics and Consequences of a New Fiduciary Standard” was held at the Bipartisan Policy Center.
  • 2017 0831 – DOL / EBSA – Proposed Rule – Extension of Transition Period and Delay of Applicability Dates – [link-Federal Register]
    • PTE 2016-01 – Best Interest Contract Exemption
    • PTE 2016-02 – Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs 
    • PTE 84-24 – Prohibited Transaction Exemption 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters 
    • 2017 – EBSA – NONRULEMAKING DOCKET 
  • 2020 – DOL/ EBSA-2020-0003 – Improving Investment Advice for Workers and Retirees – [link-dol.gov]
    • The temporary enforcement policy announced in FAB 2018-02 remains in place.
    • Docket ID number: EBSA-2020-0003
    • Comments:
  • 2020 0903 and 0904 – DOL/ EBSA-2020-0003 – Hearing – Hearing on Improving Investment Advice for Workers & Retirees – regulations.gov/docket/EBSA-2020-0003
  • 2020 1217 –  DOL / EBSA-2020-0003 – RULE – Prohibited Transaction Exemption 2020-02, Improving Investment Advice for Workers & Retirees – [link-Regulations.gov]
    • Posted Dec 17, 2020
    • ID EBSA-2020-0003-0134
    • Comments – 
    • 2020-27825
    • 29 CFR Part 2550
    • Dec 17, 2020
    • 82798 – 82866

InvestmentNews

  • 2018 0718 – InvestmentNews.com – State insurance commissioners don’t include life products in their annuity suitability reform, by Mark Schoeff Jr. – [link]
    • “We see no rationale for applying a best-interest standard or ‘suitability-plus’ standard of care to a fixed-indexed annuity transaction but not to an indexed universal life insurance transaction, or for applying a best-interest standard of care to a variable annuity transaction but not to a variable life insurance transaction,” the Center for Economic Justice wrote in a June 20 comment letter to NAIC.
    • NAIC – “That is outside the scope of our annuity suitability rule,” said Iowa insurance commissioner Doug Ommen, vice chairman of the NAIC annuity suitability working group. “I expect that we will have further discussion about that issue.”
    • Industry – The life insurance industry also is resisting expanding the NAIC rule to life insurance.
    • ACLI – “Including life insurance in the model regulation is unnecessary because life insurance sales practices are already subject to comprehensive state laws and regulations which assure that life insurance products are sold consistent with the best interest of consumers,” J. Bruce Ferguson, senior vice president for state regulation at the American Council of Life Insurers, wrote in a May 29 comment letter. – <WishList>

Level Premium Whole Life Policy Without Cash Value

  • Referring to Mr. Hutchison’s comment about the self-induced cash value fetish I wonder if he is really referring to the self-induced guaranteed cash value fetish.
  • Many years ago life companies in the U.K. offered a level premium whole life policy without cash value, as Mr. Gustafson has described for us.
    • The distasteful practice of selling those policies in the open market has not occurred for many, many years, but yet the British companies happily offer non-guaranteed cash value.
    • They do, however, offer a cash value, and that is an essential distinction.

—  Nicholas Bauer

1980 – SOA – Treatment of Existing Life Insurance Policyholders in Times of Rapidly Changing Economic Conditions, Society of Actuaries – 16p

  •  That was one of the recommendations made by the Advisory Committee that Shane and I worked on almost ten years ago, and it joined most of our other recommendations in being trashed by the then NAIC working group.
    • re: nonforfeiture regulation, policies without Cash Value
    • [Bonk: Shane = Shane Chalke]

—   Walter Miller, now an independent consultant, retired as the senior vice president and chief actuary of Prudential Preferred Financial Services

1995 – SOA – Current Developments Surrounding Regulations and Standards of Life and Annuity Products, Society of Actuaries – 18p

Double the Death Benefit

  • We designed commission rules that anticipated a relatively large number of rollovers of existing policies;.
  • ..full commissions are paid provided the new Universal Life face amount is at least two times the face amount of the replaced policy.

—   Phillip B. Norton, not a member of the Society, is Vice President of The Lincoln National Life Insurance Company

1986 – SOA – Individual Life Insurance Retention and Replacement Strategies, Society of Actuaries – 24p

  • You have just indicated the mechanism of the enhancement as a possibility, I think we are going to have to seriously look at things like that as the decade goes on if this least likely of all possible economic worlds continues to hold.

—  Dale Gustafson, Northwestern Mutual

1980 – SOA – Treatment of Existing Life Insurance Policyholders in Times of Rapidly Changing Economic Conditions, Society of Actuaries – 16p

Michael Hutchison

  • Crown Life
  • I believe that there is an urgent need for the life insurance industry to answer the accusations of its critics who say that its failure to disclose accurately the price of its products to its policyholders has led to a noncompetitive situation detrimental to the interests of policyholders and the public.

—  Michael B. Hutchison, [Bonk: Crown Life]

1969 – SOA – Life Insurance Net Cost Comparisons, Society of Actuaries – 34p

  • Some background information about my company is necessary in order to understand our approach.
    • Crown Life actively markets insurance in nine different countries.
    • I. We believe that we are a marketing organization rather than a planning organization.

—  Michael B. Hutchison, Crown Life

1977 – SOA – Marketing Strategy and Planning, Society of Actuaries – 14p 

  • 1969 – SOA – Life Insurance Net Cost Comparisons, Society of Actuaries – 34p
  • 1977 – SOA – Marketing Strategy and Planning, Society of Actuaries – 14p 
  • 1980 – SOA – Treatment of Existing Life Insurance Policyholders in Times of Rapidly Changing Economic Conditions, Society of Actuaries – 16p
  • 1980 – SOA – Treatment of Existing Life Insurance Policyholders in Times of Rapidly Changing Economic Conditions, Society of Actuaries – 16p
    • Let me take you back in history to offer my view of the evolutionary manner in which competition created this product. 
    • The problems encountered with the introduction of this product were many and varied.
    • I suppose that it is likely that an agent will put more emphasis on possible premium decreases than on increases, but the risk of misrepresentation is certainly no greater than with the sales presentation of dividend scales especially with regard to new money products.
    • With par insurance, if expectations wane, the actuary can decrease his future dividend scales without anyone really noticing, the natural increase in dividend scales tends to mask minor adjustments. Thus, an actuary can fine tune his dividend scale with little difficulty.
    • All told, l must wonder whether the pioneering has been worth the trouble.
      • Only now that all the respectable companies have entered the market have our sales finally taken off.
    • Some Canadian companies have extended this concept to areas where they are different. One of the very popular ones is to move away from a portfolio interest assumption to a new money interest assumption.
      • We have something in Canada called a “new money” whole life plan which operates essentially the same way as our Lowcost, except that the continuation of the coverage depends on the continuation of a current “new money” interest rate. If the “new money” interest rate falls the death benefit will be reduced accordingly, subject to the policyholders option to pay additional premiums to keep the death benefit up.
      • This produces very attractive numbers and the inability of either agents or policyholders to really differentiate between the new money investment risk and the portfolio investment risk has made this product very popular on the street with strong endorsement from banks, accountants, lawyers and the media.
      • This “new money” concept also has some uses in single premium form, which as you can imagine, can be a very useful replacement tool. But aside from the replacement problem, the real questions are whether the buyer understands the investment risk he is assuming, and whether he really should be exposing his insurance program to that risk.
    • Other developments in the aberration of the traditional whole life policy in Canada include the equity linked policies (called Variable Life in the U.S.) issued a dechde ago at the time when the market was peaking.
      • They were easier to introduce in Canada because of less red tape but they were not any more successful in Canada than they were in the U.S., where you couldn’t even get them into the market place. 
      • Coming at it from the other direction, it will protect companies from the long term risks that are now causing some problems. It’s all a matter of who assumes the risk. We seem to be moving into an era when the assumption of at least the investment risk by the policyholder is acceptable and even preferable.
    • Replacement artists love all these product innovations as they can have a field day improving the policies of other companies’ existing policyholders.
      • This kind of replacement activity creates an interesting secondary effect.
      • The loyal hard-working agent finds his clients attacked with both misrepresentation and also with some mathematical demonstrations that are hard to refute. He finds himself in a dilemma of whether to be loyal to his company by preserving the existing business, or to protect his status with the client by brokering a replacement policy before somebody else does.
      • Aside from the motivation of the commission it is pretty hard to blame them for taking the latter course if the company is going to lose the policyholder anyway.
      • Also, a good many agents feel either confused or resentful or both

Anti-Trust

  • When I read the program information, I was struck by the antitrust disclaimer that we have at the front of the program.
    • I want to read that disclaimer to you.
      • It says, “Under no circumstances shall meetings or programs be used as a forum for representatives of competing companies and/or firms to reach any understanding whatsoever either about the pricing of specific products, whether particular products should be marketed to the public, or terms on which products are marketed.”
      • That sounds to me like some of the things that are built into and implicit in the illustration model regulation.

—  Kevin A. Marti, vice president of administration and chief actuary for Westfield Life Insurance Company

1995 – SOA – Sales Illustrations, Society of Actuaries – 14p