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DOL Fiduciary News: August 11, 2017

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Who Is Winning With the Fiduciary Rule? Wall Street 

The Wall Street Journal; Aug. 11, 2017 5:30 a.m. ET

The brokerage business fiercely fought the new retirement advice rule. But so far for Wall Street, it has been a gift.

...Financial firms decried the restriction, which began to take effect in June, as limiting consumer choice while raising their compliance costs and potential liability.

But adherence is proving a positive. Firms are pushing customers toward accounts that charge an annual fee on their assets, rather than commissions which can violate the rule, and such fee-based accounts have long been more lucrative for the industry. In earnings calls, executives are citing the Department of Labor rule, known varyingly as the DOL or fiduciary rule, as a boon.

“Primarily because of DOL” and market appreciation, assets are growing in fee-based accounts, said Stifel Financial Corp. Chief Executive Ronald Kruszewski, on a call in July. In an interview, he said such accounts can be twice as costly for clients.

DOL fiduciary rule compliance costs exceed $4.7 billion: SIFMA study 

InvestmentNews; Aug 10, 2017 @ 2:00 pm

The brokerage industry will spend more than $4.7 billion in start-up costs relating to the Department of Labor's new fiduciary rule, far exceeding the DOL's estimated costs for broker-dealers of $2 billion to $3 billion, according to a study issued Thursday by the Securities Industry and Financial Markets Association, a trade group representing Wall Street.

Litigation risk has been a key driver in business and compliance decisions across the brokerage industry, according to the study, which was completed by Deloitte & Touche for SIFMA.

And, as widely reported previously, firms are cutting back on the number and types of products they have for sale. About two-thirds of the firms surveyed have cut the number of mutual funds they sell to investors, while close to a quarter have eliminated no-load funds and directly held funds, which are mutual funds clients have at the fund company directly rather than the brokerage. Directly held funds are popular with many independent contractor reps.

Best’s Special Report: Regulatory Uncertainty and Equity Market Volatility Lead to Shifting Trends in Individual Annuity Products

August 10, 2017 12:23 PM EDT

OLDWICK, N.J. -- (BUSINESS WIRE) -- Individual annuity direct premiums written (DPW) declined by 4.9% in 2016 to $202.7 billion after tepid increases each year from 2012 to 2014, according to a new A.M. Best special report. The muted annual growth rate, which has averaged 0.7% over the last four years, is a reflection of the pressures faced by annuity writers: increased longevity, the imminent retirement of baby boomers, persistently low interest rates, volatility in the financial markets and the DOL fiduciary rule.

The Best’s Special Report, “Regulatory Uncertainty, Equity Market Volatility Lead to Shifting Trends in Individual Annuity Products,” states that the annuity industry has a growing need for products that deliver guaranteed income and new market segments to engage an aging population. A.M. Best believes that as insurers continue to adapt to the landscape, product innovation and strategic decisions on product focus remain imperative if insurers are to remain competitive.

According to the report, annuities comprise a sizeable portion of the industry’s business production, with individual annuities fluctuating at around 30% of the industry’s net premium written (NPW) and 45% of reserves over the last 10 years (2007-2016). Driven in part by the emerging pension risk transfer market, group annuities have contributed an additional 19% in NPW and 11% in reserves. Individual annuities also have consistently contributed favorable pre-tax operating gains, accounting for 30%-45% of operating gains in each of the last eight years except for 2011.

Financial Industry Still on Fiduciary Path, Despite DOL Rule Delay 

Morningstar (commentary); 08-11-17 | 06:00 AM

By Michael Wong, CFA, CPA, senior equity analyst

While it’s been reported that the U.S. Department of Labor has requested an 18-month delay in the implementation of the second phase of its fiduciary rule to July 2019 from January 2018, we see evidence that the U.S. financial industry has already begun reducing conflicts of interest between financial advisors and their clients.

The delay to the rule was largely expected, as President Trump directed the Department of Labor to restudy the effects of the rule. Additionally, extra time would be needed by financial services companies to implement the requirements of the rule if the Department of Labor decided to make material modifications.

The majority of the implementation costs of the rule have probably already been incurred, and the three major trends that the fiduciary rule accelerates (increased use of passive investment products, fee-based accounts, and digital advice) are still firmly in place, so we are maintaining our fair value estimates and moat ratings for the affected investment management and other financial services companies that we cover.

Does Labor have justification to delay fiduciary rule?; August 10, 2017

The Labor Department’s effort to delay the January 1, 2018 implementation date for the fiduciary rule by 18 months will have to be opened for public comment after the Office of Budget and Management reviews the proposal, according to several stakeholders.

OMB’s review of the rule could take up to 90 days, as it meets with and considers input from both proponents and opponents of the overall rule.

That process is expected to be exhaustive.

Cristina Martin Firvida, director of financial security at AARP, told BenefitsPRO that the organization, perhaps the most powerful and well-funded proponent for implementing the fiduciary rule as written without delay, has already requested a meeting with OMB.

Martin Firvida said it is AARP’s understanding that Labor fully intends to open the proposed delay for public comment. The organization will make the case to OMB that further delay is unwarranted.

DOL Fiduciary Delay Would Be ‘Double-Edged Sword,’ Lawyer Says 

ThinkAdvisor; August 10, 2017

Opponents and supporters of the Department of Labor’s fiduciary rule were quick to react to Labor filing on Thursday with the Office of Management and Budget to delay by 18 months compliance with the rule’s more onerous prohibited transaction exemptions, with one ERISA attorney characterizing the move as “continued agony.”

“We will be in limbo for another two years, at least,” Steve Saxon, partner at Groom Law Group, told ThinkAdvisor in a Thursday interview. “In a way,” Saxon said, delaying compliance with the rule’s prohibited transaction exemptions from Jan. 1, 2018 to July 1, 2019 is “a double-edged sword.”

While “a lot of us wanted a delay, we needed a delay for those financial institution clients that need to put in a new disclosure regime” to comply with the rule, and “we want DOL to make changes” to the rule, particularly regarding the best-interest contract exemption, it’s also a case of “be careful what you wish for.”

Athene president applauds possible delay of DOL rule; Thursday, August 10, 2017 10:47 AM ET

Athene Holding Ltd. President William Wheeler welcomes a potential delay of the Department of Labor's fiduciary rule, saying the original regulation had "serious problems."

The Labor Department in an Aug. 9 legal brief said it is looking at delaying full implementation of the Conflict of Interest Rule by 18 months to July 1, 2019. The fiduciary rule went into partial effect on June 9, which made Athene's distribution partners subject to the best-interest standard.

Wheeler in prepared remarks during a second-quarter earnings conference call said he was "encouraged" that the National Association of Insurance Commissioners and the Securities and Exchange Commission are examining concerns created by the DOL rule. SEC Chairman Jay Clayton in July expressed hope that his regulatory body and the DOL would be able to "reach common ground" prior to full implementation. Fellow Commissioner Michael Piwowar also pressed the DOL to work more closely with the SEC on the fiduciary rule. Both men have said they were concerned that the rule, as written, would lead to non-uniform standards and be disruptive to the industry.

Vanguard, TD Ameritrade Cheer DOL’s Move to Delay Rule 

ThinkAdvisor; August 10, 2017

Vanguard is “very pleased” that the Labor Department is proposing to delay full compliance with the fiduciary rule for retirement accounts until July 2019, according to a statement emailed to ThinkAdvisor.

The CFP Board of Standards is not. It’s disappointed with the delay, which is “unnecessary” because the rule as is was “well thought out and well reasoned based on extensive input from all stakeholders,” says Maureen Thompson, its vice president of public policy.

These are just a couple of the reactions to the decision the Labor Department disclosed Wednesday in filings in a court case challenging the rule.

DOL fiduciary rule: Indexed, variable annuities big winners of a proposed delay 

InvestmentNews; Aug 10, 2017 @ 2:24 pm

Indexed and variable annuities are the biggest winners of the Department of Labor's recently telegraphed fiduciary rule delay.

Sales of the products, especially indexed annuities, would arguably have been the most adversely impacted under the original timetable, which had the full regulation going into effect on Jan. 1, 2018.

LIMRA, an insurance industry trade group, forecast in May that indexed annuity sales — which have been on an almost decade-long run-up — would dip 5-10% this year and another 15-20% in 2018 because of the regulation. 

The Labor Department on Wednesday filed a court brief indicating it had submitted a proposal to delay the remaining parts of the regulation by 18 months to July 1, 2019.

Insurance Execs: June 9 DOL Doomsday a Dud 

InsuranceNewsNet; August 10, 2017

June 9, the dreaded implementation date for the initial phase of the Department of Labor’s fiduciary rule came and went.

Barely anyone blinked in the second quarterly earning calls over the past few weeks.

“The June 9 applicability date for the Department of Labor fiduciary rule came and went without much fanfare,” John M. Matovina, CEO of American Equity Investment Life Holding Co., told analysts in a call last week.

“Changes to agents’ sales practices required by the Prohibited Transaction Exemption 84-24, including disclosure of commissions and adherence to the impartial conduct standards proved to be manageable,” he said.

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