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Insurance Agent DOL Ruling

The New DOL Fiduciary Rule

What This Means for Insurance Agents

Brian Mathews Feb 28, 2017



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.


Rough Road Ahead for Insurance Agents


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.


Mutual Funds and Annuities for Retirement Accounts Under Serious Pressure


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 Bottom Line


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