With apologies to Mr. Shakespeare, that which we call a “fiduciary” has been the subject of intense debate since the U.S. Department of Labor (DOL) first proposed its fiduciary regulation in 2015. In March this year, the Fifth Circuit Court of Appeals struck down the fiduciary regulation in its entirety on a nationwide basis following litigation in several jurisdictions by many parties including ACLI.
This is great news for retirement savers. The fiduciary rule harmed small and moderate retirement savers by restricting access to retirement products and services and essentially created a gap for those in the most need of help.
But the fiduciary regulation isn’t over yet, and there are three issues that are adding dimensions to the issue:
New York Regulation 187
New York has forged ahead on the issue. Its Regulation 187 would establish a “best interest” standard of care for those licensed to sell not just annuities, but – in an unprecedented action – also life insurance in New York.
Life insurers strongly support protections serving the best interest of customers. However, New York’s Regulation 187 is being branded as a “best interest” standard of care, when in fact it’s the fiduciary regulation by another name. There is little daylight between the New York and the DOL standards of conduct and their restrictions on financial advisors. As of this writing, insurer and producer groups were still evaluating the impact of Regulation 187 on their operations.
SEC Regulation Best Interest
In August, the U.S. Securities and Exchange Commission (SEC) released a proposed “Regulation Best Interest” (Reg BI). The proposal would strengthen existing rules on the standard of conduct for broker-dealers and provide a new opportunity to further protect retirement savers.
Reg BI achieves this goal by taking a neutral approach—not favoring one retirement product or financial professionals’ compensation arrangement over another. The result is enhanced consumer choice in retirement planning.
The SEC is taking great leadership in developing a coordinated federal and state approach to a uniform best interest standard, and ACLI stressed in comments to the SEC that life insurers strongly support consumer protections.
The SEC proposal is not, however, without its many detractors. Some say the proposal doesn’t go far enough, and others say it goes too far. For example, some state insurance and securities regulators have opined that the proposal would mysteriously jettison a well-tested suitability standard in favor of an ambiguous and difficult-to-enforce “best interest of consumer” standard. Whether, when and how the SEC threads the needle remains to be seen.
Last but certainly not least, the NAIC is in the early stages of revising its Suitability in Annuity Transactions Model Regulation. Although the SEC proposal is in their peripheral vision, NAIC leaders are focused on enhancing the existing suitability framework, rather than replacing it with a completely new, and overly subjective, best interest standard of care.
ACLI continues to seek a consistent, harmonized, appropriately tailored best interest standard of care for annuities, regardless of the financial sales representative who sells them.
The NAIC hopes to complete revisions to its Model Regulation by year-end 2018. These parallel efforts with the SEC represent the best hope for a collaborative state-federal initiative that produces consistent regulatory standards for consumers in all their retirement product purchases.
Bruce Ferguson is Senior Vice President, State Relations at the American Council of Life Insurers (ACLI). He oversees ACLI’s legislative and regulatory advocacy at all levels of state government, including organizations such as the National Association of Insurance Commissioners and associations of state legislatures and governors.