Independent Partners Group  
Home » Tool Box » Sales Ideas » Fiduciary Rule Update 2018

Fiduciary Rule Update 2018

 

As you may know, certain provisions of the Department of Labor fiduciary rule have now been officially delayed until July 1, 2019. Does that mean you don’t have to pay attention to these new rules? NO! You are still a fiduciary when you sell an annuity funded by IRA dollars. 

First, let’s review how you achieve fiduciary status. The Department of Labor expanded who qualifies as a fiduciary by broadening the definition of investment advice to include any person who makes a recommendation for a fee or other compensation concerning the advisability of acquiring, holding, or disposing of investment property in an IRA. So, if an agent receives a commission or fee on the sale of an IRA fixed annuity, they are now a fiduciary.

Once fiduciary status is triggered, certain compensation arrangements are prohibited, most notably commissions. However, there are Prohibited Transaction Exemptions (PTE) that still allow for receipt of commissions provided the terms of the PTE are followed.

Most producers selling IRA fixed annuities will rely on PTE 84-24.  This exemption requires fiduciaries who are engaging in prohibited transactions (receiving commissions) to comply with the Impartial Conduct Standard. This Standard requires the fiduciary act in the IRA holders best interest, and not make misleading statements. Best Interest is defined as the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use … based on the investment objectives, risk tolerance, financial circumstances and needs of the IRA holder without regard to the interests of the fiduciary. This is referred to as the duties of prudence and loyalty and are duties deeply rooted in ERISA and the common law of Agency and Trusts. This essentially extends ERISA fiduciary duties to IRA advisors.

There are three components to the Impartial Conduct standard:

  1. Act in the client’s best interests (duty of prudence and loyalty)
  2. Receive no more than reasonable compensation
  3.  Make no misleading statements.

 So how do you comply with the Impartial Conduct standard? You should do the following on every IRA sale:

  • Utilize a PTE 84-24 disclosure to disclose your relationship as an independent agent of the company, your commissions and any fees and charges of the product.
  •  Document the basis for your product recommendation. This should be some type of analysis that documents why your product recommendation meets the needs, goals and objectives of your client.

 

We have sample forms on our website.

It’s important that you make every effort to comply with these rules since the DOL has stated that they will not pursue claims against fiduciaries that demonstrate a good faith effort to comply. 

So, what was delayed?

Several components of the fiduciary rule have been delayed until July 1, 2019. Perhaps the most important is the requirement of a “best interest contract” which would provide clients with a private cause of action if these standards are violated. Another component that was delayed was the requirement of a “financial institution” that would be a party to the BIC agreement. 

It is still unclear what the ultimate rules will look like, but it is safe to assume that more disclosure will be required as well as increased documentation on the reasons behind the product recommendation. We will keep you updated on any further developments. 

Please give us a call at 1.800.750.5008 if you have any questions.

 

 

 

» More Sales Ideas