NAIFA President Jules Gaudreau Answers a Few Questions About NAIFA and the DOL Rule

Does the DOL rule reflect a victory for NAIFA?

It is a victory for NAIFA’s advocacy, sure. The rule itself is not a “victory for NAIFA.” The fact that The DOL addressed many of the most troubling provisions in earlier drafts of the rule, sometimes using the very language and concepts suggested by NAIFA, shows the effectiveness of our advocacy efforts. A handful of the positive changes include:
  • The Best Interest Contract (BIC) provisions can be incorporated into new account forms and signed at point-of-sale rather than during a first conversation with potential clients.
  • The rule improves provisions to grandfather existing clients
  • The rule clarifies the definition of “education” versus “recommendation.”
  • The rule eliminates the contract requirement for advice to ERISA plan sponsors and participants.
  • Advice to small employer plan sponsors and participants is now covered by the BIC.
  • Advice on rollovers and distributions is now covered by the BIC.
  • Under the final rule, advisors are not signatories to the BIC, so there is limited private right of action against advisors.
  • Proprietary products will satisfy the Best Interest standard, under certain conditions.
These are all positive changes. However, the rule is very complex. It is yet to be seen how it might affect the product offerings of financial institutions or the restrictions these companies might place on advisors. It is uncertain if new disclosure and record-keeping requirements or increased liability for financial firms will impact the ability of lower and middle-income retirement investors to get products or advice. This is something NAIFA is watching very closely, and we are poised to ramp up our advocacy on behalf of our members and consumers if provisions of the rule need to be addressed.

Does NAIFA now support the DOL Rule?

NAIFA supports our members and their clients as well as consumers who would benefit from increased access to financial planning and advice.
 
It is a stretch to say NAIFA supports the DOL rule, but we certainly support a number of the changes DOL made that are reflected in the final rule. We also will support efforts by DOL and possibly Congress to make implementation of the rule as easy as possible for advisors, financial institutions and consumers.
 
Earlier drafts of the rule were unworkable and had the potential to devastate advisors’ businesses and prevent us from serving lower or middle-income retirement savers. This was a message we took to DOL officials and members of Congress in more than a dozen meetings, briefings and hearings. It was also the focus of a strong grassroots push by NAIFA members. Our message was effective. DOL made changes based on our recommendations and in several cases incorporated our exact wording into the final rule.

If DOL accepted many of the changes NAIFA suggested, why can’t you offer your unqualified support for the rule?

DOL accepted many, but not all of our suggestions. The rule remains very complex, coming in at over 1,000 pages, and we cannot yet be certain how its implementation will impact advisors and consumers in the real world. And while NAIFA worked to blunt potential damage the rule might have caused, it is still uncertain to me what it is likely to achieve.
 
Even before the new DOL regulation goes into effect, NAIFA members are among the most tightly regulated financial professionals on the planet. We are subject to frequent and thorough reviews by our broker-dealers and the Financial Industry Regulatory Authority. We are required to compile and keep current information on our clients to ensure the products we offer them are appropriate. We have strict disclosure and record-keeping requirements as well as restrictions on how we can market our services. The new DOL requirements will be a new layer of regulation on top of this.
 
NAIFA members are also licensed professionals who only succeed by building long-term relationships with clients. We work in our clients’ interests because it is the right thing to do and because we would lose their trust and their business if we didn’t.
 
NAIFA has questioned, both publicly and in private meetings with administration officials and members of Congress, the need for additional regulation. We are convinced that the vast majority of insurance and financial advisors already work in their clients’ best interests, even without the added paperwork and other burdens a 1,000-plus-page regulation will bring. Existing laws are in place to protect consumers from less scrupulous individuals who engage in fraud or theft.
 
Still, it has been evident since at least 2010 that the Department of Labor was intent on enacting a new fiduciary rule for advisors. Last year, the White House signaled that the DOL effort was a high priority. Whether or not we support the DOL rule became irrelevant at that point. We made a decision to be a part of the process and to use our association’s advocacy strength to work with DOL and Congress to address the most troubling provisions in the DOL’s earlier proposals.

What are NAIFA’s next steps?

We are producing a four-hour workshop, with content developed by industry-recognized expert Don Trone, that will provide advisors with practical information on how they will need to satisfy their fiduciary requirements under the rule. Details are to be determined, but the workshop will occur at a number of locations around the United States and may be available to NAIFA members on the NAIFA website. The workshop will also take place at NAIFA’s Performance + Purpose conference, Sept. 17, in Las Vegas. An April 13 webinar, now available to members on the NAIFA website, provides an initial analysis of the 1,023-page rule by representatives from the Washington, D.C.-based law firm Steptoe & Johnson, and explains what the rule means for NAIFA members and their practices.
 
The DOL rule will also be on the agenda at NAIFA’s May 24-25 Congressional Conference in Washington, D.C. Nearly 1,000 NAIFA members will talk to their federal lawmakers about the DOL rule and other issues important to their businesses and clients.
 
The rule remains complex, and NAIFA will watch for any real-world difficulties or consequences as its restrictions and requirements go into effect. We will continue to work with DOL officials as they issue guidance to help financial institutions implement the rule.
 
 
  • Posted April 29, 2016 IN


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