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Firms concerned that proposed DOL fiduciary rule will impact annuity sales

On Behalf of | Feb 29, 2024 | Firm News

Some of the industry’s largest independent broker-dealers have expressed concern that the Department of Labor’s proposed fiduciary rule could have a detrimental effect on the annuity market, reports AdvisorHub.

The proposal is called the Retirement Security Rule: Definition of an Investment Advice Fiduciary. It would update the definition of an investment advice fiduciary under the Employee Retirement Income Security Act. The rule would impose the fiduciary standard of federal retirement law on most investment advisors, brokers, and insurance agents making recommendations to retirement plans and plan participants and customers in individual retirement accounts.  The advisors would be required to adhere to high standards of care and loyalty when making their recommendations and avoid recommendations that favor their financial and other interests at the expense of retirement savers.

According to AdvisorHub, the proposal is expected to limit sales of annuities by extending the fiduciary requirements for advisors or brokers when they made one-time sales of annuities to retirement savers.  Currently, annuity sales are primarily regulated by states.

Among the firms opposing the DOL’s plan are LPL Financial, Ameriprise Financial and Raymond James Financial, three of the most prominent companies in the advisor-sold annuities market.  All have written letters to the DOL during the public comment period detailing their criticisms of the new rule.

“LPL believes that imposing an overbroad ERISA fiduciary standard on all interactions with retirement investors, which is effectively what this Proposal does, is unnecessary, costly and creates extraneous risk for financial institutions,” Althea Brown, LPL’s chief legal officer, wrote.  In its letter, Ameriprise said the fiduciary proposal could discourage companies from selling annuities.

Others who have filed public comments on the measure said it would ensure that investors receive prudent and sound advice when purchasing annuities.

“The proposed rule would not affect the sale of competitively priced annuities recommended by unbiased advisors,” according to a comment letter from the Economic Policy Institute, a pro-consumer think tank. “It would only prevent salespeople acting as advisors from recommending high-cost annuities that are not in retirement savers’ best interest.”

LPL took in $408 million in commission revenue from annuities in the fourth quarter, a 23% increase from the previous year.  Overall, total sales of annuities hit a record $115.3 during the fourth quarter of 2023, up 29% from 2022.

The DOL has said that the fiduciary proposal is necessary because some financial advisers put their interests before their clients’ interests, resulting in reduced returns and higher costs for investors.  The new rule is expected to take effect in early 2025.

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