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How Clients’ Annuity Products Will Be Affected By DOL Rule


In the article, “5 questions clients may ask about the DOL fiduciary ruling,” LifeHealthPro’s Peggy Bresnick looks at the consumer’s concerns about the new regulations. Consumers are wondering how their investments might be affected as well as how their relationship with their advisor might change. Both fixed indexed annuities and variable annuity products are now subject to BICE requirements, or the Best Interest Contract Exemption. The heightened fiduciary standards will affect advisors and their clients. Most consumers are well aware of these new guidelines because of all of the attention they received in the media during the proposal stage and after the regulations were finalized April 6.

Advisors have some extra work to do to make sure that they are in compliance with the fiduciary ruling. They’ll have to research the final details, the fact sheet, and be well versed on the BICE guidelines. One expert recommends that advisors divide their clients into three groups. The first would be clients who are currently in commission-based products and have to be moved to advice-based accounts. Then there will be a segment of clients who would be worse off in the second type of account, so they’ll need to stay where they are. Finally, many advisors will have a portion of clients that they can no longer keep because they are small or will simply be unprofitable and will be better off elsewhere. After clients have done their homework and separated their clients into groups, they’ll be better able to answer questions from them about the DOL ruling.

The major question that clients will ask is what the DOL fiduciary rule actually is and how it will change their relationship with their advisor. It’s purpose is to protect investors from receiving financial advise based on the advisor’s commission rather than what is in the best interest of the consumer. The rule is complex, but it basically just increases the criteria that advisors use to sell a product to their clients. Both fixed indexed and variable annuity products were included in these new guidelines. Retirement planning advisors must take the best interest of their clients into account before recommending any of these annuity products. Advisors also have to let their clients know if their advice has any conflicts of interest involved. Oftentimes, advisors sell financial products that are profitable to the industry and their affiliates rather than products that may be better for their clients. These requirements will make it tougher for advisors, but in reality should truly benefit consumers and the ethics of the financial industry in general.

Clients will also be curious about which of their accounts are affected by the DOL fiduciary ruling. This ruling affects any retirement savings products and accounts, but does not affect non-taxable investments. Although the ruling has been “finalized”, clients are wondering when it will actually affect them. The ruling goes into effect April 10, 2017 for some of the provisions. Those advisors dealing with retirement products have to detail conflicts of interest and fiduciary status by then. The rest of the ruling will take effect January 1, 2018. This will include the remaining requirements for banks, broker dealers and advisors. Whether clients will pay more or less for their retirement advice depends solely on their advisor, accounts and individual situation. That will be determined on a case by case basis. Clients also wonder if there is anything on their end that they have to do with the new rule. Other than signing a Best Interest Contract Exemption in some cases, advisors will be handling all of the details associated with the rule.

There are a lot of changes coming in the annuity industry after the DOL fiduciary rule for both advisors and their clients. Advisors must do their homework on the DOL rule and let their clients know what changes may be to come for their annuity products and retirement savings investments.

Written by Rachel Summit

Follow Rachel, aka Finance Mama, on Twitter and Google+

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