To act as a fiduciary, an insurance agent will need to act in the best interests of the client and put the client’s interest above his or her own. This rule also requires fiduciaries to disclose all fees to the client, even though they may be hidden in the investment or insurance prospectus. For instance, mutual fund fees pertaining to A shares, C shares, or expense ratios need to be fully disclosed.

As a result, insurance agents are trying to comply with the rule, either by implementing changes to conform to the rule or by exiting the retirement business altogether. In this article, we intend to look at the options for insurance agents and their possible impact on investors.

Several insurance companies use opportunities to cross-sell to their clients a variety of products, including retirement accounts. However, any company that wants to continue working with qualified accounts needs to adapt to the proposed fiduciary rule or face regulatory penalties. For example, if a client is signing up to get new auto insurance, it is standard sales practice for the insurance agent to ask if they have any home, umbrella, life, disability and long-term care insurance. As a further opportunity, an agent will ask if they have started saving for retirement or have money in a previous employer’s retirement plan. Under the new DOL rule, if the agent wants to continue to ask these questions about a client’s retirement accounts, they must be willing to abide by a fiduciary standard.

Before you move into the next section, you might want to have quick look over the ways by which you can purchase mutual funds.

There are insurance agencies that have already begun exiting from the retirement and qualified plan business in order to not have to deal with the proposed DOL rule. For instance, State Farm Insurance Agency had a number of in-house mutual funds and other retirement products that their licensed agents would sell to their clients on a regular basis. The company has stated that from April 2017, their agents will no longer have access to those investments and will lose out on all commissions associated with them.

The only option for agents is to refer their clients to a call center, for which the agent will still not get any compensation. There are ways to know if you have been paying more than required for your mutual fund investments.

Meanwhile, insurance agents who choose to receive a commission from qualified plans or retirement accounts will need to comply with the proposed DOL ruling. This will require clients to sign a Best Interest Contract Exemption (BICE) form.

However, even if a client signs this form, which allows them to remain on a commission format, insurance agents will still need to heavily document conversations with clients before a transaction occurs. This includes fee conversations the agent has about the investment’s disclosures, and risks and other alternatives the client can take to ensure that he or she knows that it is indeed in his or her best interest.

To get to know the multifaceted impact of the DOL ruling on various participants of the industry and the investor community, check our DOL section.

Insurance agents will also be impacted by the investment selection that is deemed appropriate for their clients. Mutual funds and annuities are the two most common retirement investments that are sold by insurance agents.

Mutual funds need to be selected on the basis of both performance and expenses. If there is a similar investment that is available at a lower cost, it must be shown to the client. If not, the agent will be construed as not abiding by the new fiduciary rules. Exchange traded funds (ETFs), for example, are generally lower in cost than most mutual funds. However, a major constraint is that most agents are not licensed to sell ETFs like they are mutual funds.

You can explore some of the mutual funds that can be considered for the retirement account.

Annuities are also deemed a high-fee retirement investment sold by insurance agents. The DOL wants to ensure that consumers are getting value in exchange for any advice in their retirement accounts. If an annuity’s living or death benefits, such as a guaranteed income stream, outweigh the higher costs, then it falls under the DOL rule. However, annuity fees have to come down just to stay relevant and keep up with the competition.

If there are two annuities with similar living or death benefits, then the agent should select the product with the lowest internal costs.

After all is said and done, insurance agents need to figure out how to offer their retirement account clients a lower-cost investment alternative to mutual funds and annuities. Investments like exchange traded funds are favored by the DOL, as it gives investors a diversified investment with a very low internal expense. In this context, you can check out the Vanguard option (VOO).

The new DOL Fiduciary rule will force many insurance agents and agencies out of the retirement business. Many are not equipped to comply with the necessary changes and therefore will either sell off or end their retirement business. Insurance agents that would like to continue to serve retirement accounts will need to adapt by having clients sign the BICE contract and get additional licensing so they can more properly serve in their client’s best interest.

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