Committees Active on This Topic

Additional Resources

How The DOL Fiduciary Rule Changed Norms
July 4, 2018, Insurance News Net

DOL Fiduciary Rule Vacated. Now What?
April 4, 2018, Think Advisor

18-Month Extension
November 2017, Federal Register

Field Assistance Bulletin No. 2017-03
August 2017, EBSA

Presidential Memorandum on Fiduciary Duty Rule
February 2017, The White House

NAIC Comment Letter
July 2015, NAIC

 DOL EBSA

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NAIC Center for Insurance Policy and Research (CIPR)

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Fiduciary Requirements and Suitability

Last Updated 7/12/2018

Issue: In April 2016, the U.S. Department of Labor (DOL) completed regulations broadening its definition of fiduciary investment advice under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. These regulations will expand the scope of who is considered a fiduciary to ERISA retirement plans and IRAs, which will include a broader set of insurance agents, insurance brokers, and insurers. As such, its implementation would likely have far reaching implications for the overall retirement marketplace. This is concerning to insurance regulators as many of us expect sound investment advice will be less readily available to the public if the DOL Fiduciary regulation is implemented.

The compensation restrictions imposed by the change in the DOL rule have the effect of limiting the willingness of some insurance producers to serve persons with smaller retirement accounts. Instead of benefiting from the fiduciary standard, people with smaller retirement accounts are now having difficulty finding an advisor willing to work with them. This creates a void of information for our most vulnerable citizens.

The first phase of implementation was set to be applicable in April 2017, but a number of developments at the executive and judicial have delayed it. Most recently, the DOL announced it is not enforcing the Fiduciary Rule pending further review following the Fifth Circuit decision to vacate the DOL's Fiduciary Rule in its entirety in March of this year. However, exemptions may still be used by those entities that have already changed their structure to comply with the Rule.

It should also be noted the Securities and Exchange Commission (SEC) has announced its plans to develop a best interest standard by the end of the second quarter. It released a proposed rule on April 18 updating the standard of care broker/dealers and investment advisors should apply for retail investors. The rule was published in the Federal Register on May 9; comments are due by August 7, 2018.

Overview: The DOL finished its work on the regulations in April 2016. As part of the rulemaking, the NAIC submitted a comment letter in July 2015 and met with DOL officials to underscore the importance of operationalizing a number of the proposed rule's provisions and providing clarity in the rule to limit the potential for unintended consequences, confusion or litigation. The first phase of implementation was set to be applicable in April 2017.

The Trump administration issued a Presidential memorandum in Feb. 2017 ordering the DOL to reevaluate the rule. As a result, implementation was pushed back to June 9, 2017 with full implementation expected by Jan. 1, 2018. In Oct. 2017, the DOL filed a rule with the Office of Management of Budget (OMB) to delay the fiduciary rule's effective date by another 18 months to July 1, 2019. The expanded definition of fiduciary is currently in effect, along with new "impartial conduct standards." However, certain exemptions have been delayed.

Status: For 2018, the NAIC will continue monitoring DOL and SEC activities. Insurance regulators will need to interact with those entities where we have overlapping jurisdictions. It is not believed the Fifth Circuit ruling will affect the work being done by the NAIC in updating the Annuity Suitability Model (#275). The NAIC model regulation goes into much detail about what constitutes suitability information and what factors must be considered when determining product suitability. Insurance producers are held to accountable to the suitability standard when selling a new or replacement annuity.

The Annuity Suitability (A) Working Group began drafting amendments to model #275 in November, 2017. The Chair's draft amendments added a best-interest standard-of-care requirement to the model, mandating producers and insurers, where no producer is involved, act "with reasonable diligence, care, skill and prudence in a manner that puts the interest of the consumer first and foremost". During an interim meeting in June, the Working Group decided to shift from defining "best interest", to setting criteria requiring insurers and producers to ensure products are suitable and consumer's interest are placed ahead of their own.

These preliminarily revisions are in Section 6, Duties of Insurers and of Insurance Producers of the model. The Working Group still has to consider revisions to other sections in the model, such as the scope, definition and enforcement sections. In addition, the Working Group will have to discuss the possibility of developing separate sections for consumer disclosures, producer and insurer prohibited practices and compensation issues. It is also considering making a recommendation to the Life Insurance Committee to expand the scope of the model to include suitability issues in life insurance.