Fixed Annuity Sellers May Get Fiduciary Rule Relief

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By Sean Forbes

Insurance intermediaries would be allowed to receive commissions when selling fixed annuity contracts, under a proposed exemption from the Department of Labor’s fiduciary rule.

The fiduciary rule tightens conflict-of-interest restrictions on financial advisers handling retirement accounts. The rule was finalized in April 2016 and is set to take effect this April. It faces an uncertain future once President-elect Donald Trump takes office. Republicans have tried several times to kill the rule and most recently have proposed delaying the rule for two years.

The DOL’s proposal (ZRIN:1210-ZA26), released Jan. 18, would allow certain insurance intermediaries, and the insurance agents and insurance companies they contract with, to use certain compensation arrangements that might otherwise be forbidden, as long as they put their clients’ best interest first. Such insurance intermediaries are commonly referred to as independent marketing organizations (IMOs), field marketing organizations (FMOs) and brokerage general agencies (BGAs).

The exemption would apply to recommendations of “fixed annuity contracts,” which generally include fixed rate annuities and fixed indexed annuities. The exemption would be available April 10, when the fiduciary rule takes effect. The proposal also would grant transition relief to Aug. 15, 2018.

Much of the exemption looks similar to the finalized fiduciary rule’s best-interest-contract exemption, a DOL official, speaking on the condition of anonymity, told Bloomberg BNA. “In a lot of ways, it just mirrors the BICE,” but with additional conditions such as special disclosure requirements, the official said.

Individual Exemption Requests

The DOL said it devised the proposal in response to requests from nearly two dozen insurance intermediaries that contract with independent insurance agents to sell fixed annuities. They sought relief from the rule similar to the BICE. The BICE allows certain investment advice fiduciaries to receive various forms of compensation that, in the absence of an exemption, wouldn’t be permitted under the fiduciary rule.

Under the proposal, to take advantage of the exemption, an insurance intermediary must have had fixed annuity contract sales averaging at least $1.5 billion in premiums over each of the three prior fiscal years.

The DOL chose to set a high bar on minimum sales because it felt that such IMOs deal with enough insurance companies that they can provide the supervisory structure to mitigate conflicts of interests among them, the DOL official said.

The size requirement is one “that in and of itself really limits the potential pool of candidates” that could apply for the exemption, Nathan Hightower, general counsel for Clearwater, Fla.-based AmeriLife Group LLC, told Bloomberg BNA. AmeriLife was one of the firms that asked the DOL for the exemption.

The proposal also would require firms to set aside a reserve equal to at least 1 percent of premium sales as fiduciary liability coverage. But because the department refers to this as “fiduciary liability insurance,” it’s unclear whether such coverage would be distinct from errors and omissions insurance, Hightower said. In addition, if the minimum reserve requirement is $1.5 million—based on minimum sales of $1.5 billion—that would discourage some IMOs and FMOs from asking for the exemption, he said.

The DOL official said the fiduciary liability insurance coverage would be separate from E&O coverage, but also said it would be up to the insurance industry to determine how to offer it.

The proposal is scheduled to be published Jan. 19 in the Federal Register. Comments are due by Feb. 21.

To contact the reporter on this story: Sean Forbes in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

For More Information

Text of the proposed exemption is at

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