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ANNUITIES

IMOs Have Tricky Path to Sales Under DOL Rules

Insurance marketing organizations (IMOs) are playing a guessing game while selling annuities under the Department of Labor (DOL) fiduciary rules, experts say.

The issue is how to sell variable and fixed indexed annuities for the remainder of the year. Phase one of the DOL rules went into effect June 9, but with two “transition” exemptions: the Best Interest Contract Exemption (BICE) and the Prohibited Transaction Exemption (PTE) 84-24.

Ideally, IMOs and field marketing organizations (FMOs) would sell under the transition BICE, said Michael P. Kreps, a principal at Groom Law Group. The transition BICE is less onerous than the transition PTE 84-24.

However, the BICE also requires a “financial institution” to oversee those variable and fixed indexed annuity sales. IMOs and FMOs cannot serve as financial institutions under the DOL rules.

But the transition BICE language is flexible enough that it would seem to permit marketing organizations to sell under that exemption — at least until Jan. 1, 2018. Phase two of the DOL rules, with the full BICE mandates, is slated to take effect on that date.

“My understanding from the department is during this period they don’t plan to put IMOs and FMOs out of business,” Kreps said during a webinar sponsored by Groom Law Group and the Insured Retirement Institute. “They want to give them a path, so the BICE is the path.”

Meanwhile, a “blanket exemption” to permit marketing organizations to serve as financial institutions is “unlikely to be finalized in the near future,” Kreps added.

At the heart of it, the DOL rules are feared because they establish a private right of action allowing investors to sue for nondisclosure of a conflict of interest.

 

Impartial Conduct Standards

For the remainder of the year, the DOL rules mandate Impartial Conduct Standards for all sales with retirement account funds.

These standards have three requirements: use a best-interest standard, accept only reasonable compensation and make no materially misleading statements.

Industry disclosure schemes seem to be more than adequate in most cases, said Thomas Roberts, a member of Groom Law Group’s fiduciary practice group.

Some of the phase one requirements by the transition PTE 84-24 are more difficult, Roberts noted. For example, “failure to disclose a conflict of interest is in itself deemed to be a misleading statement,” he said.

That goes beyond what is mandated by the transition BICE. Still, insurance marketing firms are shying away from the BICE.

“I attribute it to sort of a lingering doubt. A lingering concern,” Roberts said. “Rather than risk the possibility that transition period BICE might not be available, we would just feel better going the 84-24 route and doing the extra work necessary.”

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. Follow him on Twitter @INNJohnH. John may be reached at [email protected].