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DOL Fiduciary News: August 3, 2017

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Consumer and insurance groups disagree on advice standard for annuity sales

InvestmentNews; Aug 2, 2017 @ 2:52 pm

An effort by state insurance regulators to raise investment-advice standards for annuity sales appears to be driving a wedge between consumer organizations and a life insurance trade association.

In light of the Labor Department's fiduciary rule, the National Association of Insurance Commissioners established a working group in April to review its suitability standard for annuity sales.

In advance of the working group's next meeting on Sunday in Philadelphia, the NAIC has been receiving input on its review, including a proposal for a "uniform standard of care" submitted by the American Council of Life Insurers.

Under the ACLI framework, a broker or insurance representative would be making a recommendation in the best interest of a consumer when he or she makes no misleading statements, fully discloses fees and compensation and "avoids, discloses or reasonably manages material conflicts of interest."

A Procrastinator’s Guide to the DOL Fiduciary Rule

Journal of Financial Planning; August 2017 print edition

The department of labor’s Conflict of Interest Final Rule—the fiduciary rule—went into partial effect on June 9 with full implementation slated for January 1, 2018. The June 9 partial implementation includes an expanded definition of fiduciary investment advice and impartial conduct standards.

At our firm, the Pension Resource Institute (PRI), we’re expecting changes between now and January 1, 2018; perhaps a lessening of some of the more onerous conditions of the Best Interest Contract Exemption, or BICE, but that’s not the rule as written today, and we’ve been advising our clients to go forward with what’s on the books today.

Thinking about the new, expanded definition of investment advice, some financial advisers may say: “I’ve been a fiduciary under the Investment Advisers Act of 1940; this new DOL rule doesn’t impact me.” Because the ERISA standard imposes a greater fiduciary burden than the 1940 Act, it will impact you.

You are a fiduciary under ERISA if you do one of three things: (1) exercise discretion over the management plan or IRA assets; (2) render investment advice to a retirement investor for compensation (the focus of this article); or (3) have any discretionary authority over the management or administration of the plan. 

DOL rule could increase home office discretion; August 2, 2017

A new Cerulli report says that firms adding compliance and monitoring capabilities to their rep-as-portfolio-manager platforms are making the unpleasant discovery that a significant number of advisors “do a poor job of steering client assets.”

As a result, according to The Cerulli Edge—U.S. Edition, August 2017 issue, most executives foresee an increase in home-office discretion as underperforming advisors are identified and convinced to use portfolios created by the headquarters consulting group.

In the wake of 2008’s market collapse, the report says, “advisors have flocked to rep-as-portfolio-manager programs because they want the ability to alter portfolio strategy quickly in a volatile market.” However, the added cost of the strategy discourages them from outsourcing, since they “resist any fees that might reduce their clients’ net-of-fee returns.”

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