DOL Fiduciary Deadline is coming, what compliance is essential?

The decision earlier this week by Labor Secretary Acosta to not further delay the implementation of the DOL Fiduciary standards on June 9th. This is creating a huge push for compliance guidelines for annuity sales staff, annuity brokers and structured settlement experts. Ok, maybe not the structured settlement experts, they are exempted from just about all suitability and regulatory oversight other annuity purveyors are being held to. That said, these standards will very likely become the defacto expectation regarding duty of care to clients and structured settlement professionals would be wise to immediately adapt their business practices to adhere to them. 

The future. Photo Credit Shutterstock

The future. Photo Credit Shutterstock

This morning ThinkAdvisor published what I think is a very handy check list of dates, guidelines and duties related to how and where this new Fiduciary Standard is being applied. It is as follows:

  1. Applies to IRAs: The rule applies to investment advice concerning IRAs, ERISA plans, and plans covered by Section 4975 of the Tax Code.
  2. Best interest standard starts June 9: Beginning June 9, financial institutions and advisors to covered plans must provide advice in the retirement investor’s “best interest,” which includes a duty of prudence and loyalty.
  3. BICE compliance starts Jan. 1: The extensive compliance requirements of the best interest contract exemption, which would apply to non-level fee products, are not in force until Jan. 1, 2018.
  4. DOL expects changes by Jan. 1: During the transition period (June 9-Jan. 1), Labor will collect additional information from the industry to determine how compliance practices such as the use of mutual fund “clean shares” should reshape the rule.
  5. Proprietary products with commissions permitted: During the transition period, firms can recommend proprietary products with commissions so long as they satisfy the best interest standard.
  6. Need policies and procedures: Labor expects firms to adopt policies and procedures necessary to ensure compliance with the best interest standard.
  7. Robo-advisors can rely on BICE: Robo-advisors may rely on the BICE during the transition period to ensure compliance with the rule.
  8.  Investment advice narrowly defined: Investment advice, for purposes of the rule, does not include plan information or general financial, investment and retirement information.
  9. Can rely on written representations from intermediaries: The rule does not apply if an independent fiduciary provides written representations (including negative consent) that the fiduciary is a bank, insurance company, BD, RIA, or independent fiduciary managing at least $50 million.
  10. DOL will focus on compliance over enforcement: Labor says it will prioritize compliance over enforcement during the transition period so long as firms work diligently and in good faith to comply with the rule. ( Source: ThinkAdvisor.com, published 5/26/17)

In short, we are entering a world where a ton of annuity sales used in IRA roll overs by the Fixed Index Annuity markets is being swept into a standard that requires full disclosure of commissions, conflicts and making sure the recommendation is demonstrably in the best interest of the client. There are a lot of effective compliance tools and courses developed for this transition, I strongly suggest structured settlement professionals and structured settlement planners adopt them on the same schedule and be ahead of the curve instead of behind it. 

Posted on May 26, 2017 and filed under Settlement Expert.

Structured Settlement reform called for. Opinion article in The Hill

Earlier this week an opinion segment was published in the widely read Washington news entity, The Hill, that brought up the issue of Structured Settlement reform and looked once again at the AIG class action lawsuit and issues related to transparency, commissions and business practices in the light of how things are done in comparable financial transactions. 

Credit: The Hill

Credit: The Hill

Authored by trial lawyer and former structured settlement planner, Dick Risk, it is entitled "Why Congress needs to reform structured settlements" and it examines crucial issues that are rarely discussed by trial lawyers, Congress and structured settlement professionals. For anyone in the structured settlement profession Dick Risk is a familiar name as a determined advocate for the rights of plaintiffs in settlement to select the adviser, planner and funding company that set's up their structured settlement. This has often brought him into sharp conflict with NSSTA (National Structured Settlement Trade Association) leadership and members, as the type of transparency and plaintiff control Dick advocates directly threaten's the business model upon which the structured settlement profession largely exists and operated on over the last 40 years. 

Further, Dick Risk late in his career went to law school, obtained membership in the bar and commenced lawsuits against the industry and these practices. The most notable being one against The Hartford Insurance Group regarding an undisclosed commission arrangement they had as part of their claims practice. Then more recently Attorney Risk is one of the plaintiff attorney's at the center of the AIG class action filed earlier this year. As a result of his advocacy in this area, many would tend to dismiss this article and it's points as hopelessly slanted given the back ground and career of the author. 

I believe ignoring or trying to minimize this article would be a huge mistake for trial lawyers, but even more of a mistake for the leadership of the Structured Settlement profession as the issues he highlights are at the center of a wave of change that is going to soon overwhelm the structured settlement planning profession. 

While most will want to "shoot the messenger" I am strongly of the opinion that much, if not all of what is being proposed here is totally consistent with the broader trends toward a fiduciary standard, full disclosure to clients and the BICE, Best Interest Contract Exemption, standard that is now being applied to fixed index annuity sales under DOL standards effective June 9, 2017. Just yesterday the Secretary of Labor essentially conceded that it would be disruptive to further delay the implementation of the fiduciary standard of care when dealing with any retirement accounts. This decision came after an avalanche of opposition to the rule from the annuity industry to rules that require them to clearly disclose all compensation, state any conflicts and make clear that the recommendation is in the best interest of the client. Clearly the tide has shifted as such a lobby effort in the past inside a Republican administration would have produced the desired results that life companies are use to getting. 

My questions is how could any reasonable person be opposed to such a standard being applied to the planning of a structured settlement for a badly injured, disabled or impaired individual? Well, the reality is that standard is not applied currently and if you look at the litigation mentioned in the article, it is clear that this important transaction is not even governed using the NAIC standards for suitability. However, there is a sea change coming and articles such as this one by Attorney Risk are just the first warning bells to both trial lawyers and planners that a fiduciary standard eventually needs to be applied on these irrevocable annuity programs. However, as the article makes clear, until the business relationships that prevent trial lawyers and plaintiffs from having the sole choice of who their settlement planner is, what life company they use for the annuity and the control of casualty companies in the decision is removed, these changes simply won't arrive any time in the near future. 

I'll be covering in greater detail in coming posts some of the current conflicts and issues that are stripping away the rights of plaintiffs to control their financial futures, largely due to troubling trends in some federal cases that take all choice of planning away from the client at settlement and during the life of their annuity. It is up to trial lawyers and their state and national organizations to raise the profile of this issue so that a contemporary and transparent level of diligence is required on all structured settlements and that plaintiffs are sufficiently empowered as to their choice of advisers and companies they wish to work with when putting these essential annuity programs into place. 

Structured settlement suits discussed in Thinkadvisor article

Earlier this month, one of the leading online publications covering financial planning, investments and life insurance/annuity issues did an exhaustive review of many of the issues facing the structured settlement profession. Written by long time industry expert Senior Editor Warren S. Hirsch, the article looks into several key issues and quotes Settlement Channel commentator and structured settlement industry expert, Mark Wahlstrom, President of Wahlstrom & Associates. 

Photo Credit: Think Stock and ThinkAdvisor

Photo Credit: Think Stock and ThinkAdvisor

The article, Titled "Suit puts structured settlements in spot light" initially focuses on the recent lawsuit filed against casualty giant AIG, alleging among other things that commission's were not disclosed properly and that certain members of the structured settlement profession had worked in unison with AIG to with hold information from plaintiffs about their choices in annuity companies, design of the program and compensation agreements for defense brokers. 

However, the article takes a deeper dive into the issue that is starting to really raise it's head in the structured settlement profession, that being whether the Fiduciary Standard that is being increasingly forced upon other annuity product sales, such as Fixed Index Annuities, will begin to be applied to structured settlement transactions as well. 

Wahlstrom commented that he feels it is inevitable that the structured settlement profession would be brought into the new world of open disclosure of commissions, business relationships and clear conflict of interest avoidance when a structured settlement is being proposed to a client. Regardless of the outcome of the litigation in the AIG class action, the momentum, in his opinion, has swung in the direction of disclosure and a fiduciary standard. This of course would upset the long standing fixed commission of 4% that is paid on all structured settlements, as well as other sales support provided by life and annuity markets to the agents working to place annuity contracts that fund structured settlements. 

Clearly change is coming to structured settlements and no matter how hard the industry pushes back, a new standard is going to be imposed at some point by outside forces looking to bring the sale of structured settlements on an equal footing with the sale of other financial products.  Check out the full article at the link above and share your thoughts with us here.