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DOL Fiduciary News: March 16, 2018

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5th Circuit Court of Appeals kills fiduciary rule

BenefitsPRO | March 15, 2018 at 06:10 PM

The 5th Circuit Court of Appeals has issued a ruling vacating the Labor Department’s fiduciary rule. In a 2-to-1 decision, the court reversed a 2016 lower court decision in Texas upholding the rule, which was finalized under the Obama Administration in April of 2016.

The U.S. Chamber of Commerce, Security Industry and Financial Markets Association, Financial Services Institute, and several other trade organizations representing the financial services and insurance industries sued the Labor Department, alleging regulators overstepped their authority in promulgating the rule, and failed to comply with the Administrative Procedure Act, among other claims.

The fiduciary rule amended the Employee Retirement Income Security Act to make all providers of investments to qualified retirement accounts fiduciaries, including brokers of securities and insurance agents that make one-time sales recommendations.

And it extended ERISA’s original fiduciary definitions that applied to the employer-provided retirement plan market to IRAs in the retail market.

“Although lacking direct regulatory authority over IRA ‘fiduciaries’, DOL impermissibly bootstrapped what should have been safe harbor criteria into ‘backdoor regulation’,” wrote Judge Edith Jones in the ruling.

SEC Fiduciary Rule Likely to Address Broker, Advisor Titles: Peirce

ThinkAdvisor | March 15, 2018 at 11:00 AM

SEC Commissioner Hester Peirce said Thursday that “it’s time” for the agency to write a fiduciary rule and that she supports the rule including measures to address broker and advisor titles.

“I’m certainly open to trying to address that issue,” Peirce said in response to a question from Karen Barr, president and CEO of the Investment Adviser Association, at the group’s annual compliance conference in Washington, on whether the agency should address regulating broker and advisor titles in its anticipated fiduciary rule, as varying titles have led to investor confusion. “I wouldn’t be surprised if we see something along those lines,” perhaps with “guidance on what they can and cannot call themselves.”

Peirce, a Republican, said that “it’s been time for decades” for the agency to write a fiduciary rule.

The Labor Department, in its fiduciary rule, “took steps that were quite destructive,” Peirce said, adding that the securities regulator needs to “come in with our experience and address [the fiduciary issue] from a better and more principled standpoint.”

Peirce said that while she’s “looking forward to doing something in this [fiduciary] area,” clarification is needed on applying a “best-interest standard” to broker-dealers in a fiduciary rulemaking. “I still don’t understand what it means; [best-interest] means something different to different people,” Peirce said. “I hope we can put some meat on the bones of what that might actually mean in practice.”

Advisors Urged to Retire the Traditional Asset-Based Fee

Financial Advisor; March 14, 2018

Financial advisors need to consider breaking away from the traditional asset-based fee to better serve clients, according to one business consultant.

Some advisors are already coming up with innovative fee models that give clients more flexibility and choices in how they pay for services, said Matthew Jackson, director in the global banking division at Simon-Kucher & Partners, a consulting firm based in New York City.

“Having a diversity of fees means you can serve diverse clients,” Jackson said, adding that pricing incorrectly is “a good way to go out of business.”

Simon-Kucher has released a report on eight pricing models designed for different types of clients that have been developed by advisor firms. These are value-based pricing models that start from the clients’ needs rather than from the firm’s costs or what others are charging.

‘We Don’t Need Sexy,’ RIA Says of Annuities

InsuranceNewsNet; March 15, 2018

Fee-based annuity sales are rising, but they still make up a tiny sliver of overall annuity sales so what’s it going to take to crack the registered investment advisor (RIA) channel?

Fee-only advisor to high-net-worth clients Karen E. Van Voorhis has some thoughts about that.

“I am usually only interested in an annuity for its ability to give the client some tax-deferred growth,” Van Voorhis said. “I want a place to park taxable money; therefore it needs to be low fees. The income stream is completely irrelevant to me.”

Van Voorhis prefers simplicity, eschews guarantees and approaches annuity features warily.

“We don’t need sexy, that’s not an appeal,” said Van Voorhis, an advisor with Sapers & Wallack in Newton, Mass. “When I hear sexy, I think what’s this going to cost?”

Financial planner Todd Curry stopped placing clients into variable annuities with income benefits in 2015 in anticipation of the Department of Labor’s fiduciary rule. He often ponders what would cause him to use variable annuities again.

Products that can be used on his fee platform, where Curry can bill an advisory fee appropriate for the work involved would be a start.

“The advisory fee needs to be able to be deducted from the annuity account," he explained. “Right now, the fee must come from another source.”

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