The C2P Advisory Group visited the DOL in 2016 to help regulators understand how an independent marketing organization sells annuities.
Clients receive the “Bucket Plan” guide to financial planning with an emphasis on retirement, C2P executives told Assistant Secretary Phyllis Borzi. The fiduciary planning model stems from the book “The Bucket Plan: Protecting and Growing Your Assets for a Worry-Free Retirement,” by C2P founder Jason L. Smith.
The visit went very well, or so thought Doug King, CEO of C2P Advisory Group. C2P executives hoped the visit would give the DOL the knowledge it needed to give IMOs some standing to serve as financial institutions in its fiduciary rule.
The financial institution is the liable party in an annuity sale.
“They did not give us, nor could they give us, an approval and say, ‘Yep, that’s what we want,’” King recalled. “But they did make the comment that ‘That’s how we hope all of the financial institutions would operate.’”
But instead of making room for IMOs, the DOL proposed a “Super-IMO” exemption that limited the financial institution designation to IMOs with three consecutive years of at least $1.5 billion in premium. If the exemption remains, only a few IMOs will qualify.
“Groups like us, who follow a fiduciary process, would effectively be eliminated from being a financial institution,” King said. “It puts us out of business, to be perfectly blunt. I just don’t see how that’s in the best interest of the client.”
Banks, insurance companies, securities brokers and investment advisor intermediaries were identified as financial institutions when the DOL rule was issued in April 2016. Insurance intermediaries were left out and included in the separate best-interest contract exemption for insurance intermediaries issued in January 2017.
Many of the requirements in BICE for insurance intermediaries mirror the requirements of the standard BICE, and meeting the terms of the exemptions is a must for distributors seeking to retain the income from commissions and overrides.
The high bar is necessary precisely because IMOs are not regulated in quite the same way as other financial institutions, DOL officials claimed.
IMOs will still be responsible for selling huge volumes of fixed indexed annuities and will make as many as 227,000 annuity disclosures every year to retirement plans and IRAs, the DOL estimated.
King isn’t so sure about that.
“We went back to them and tried to help them understand that what it would do is actually the opposite of what they hoped to do,” he said. “Meaning that it would create more groups to sell more annuities that may or may not be in the best interest of the client in order to get over that standard.”