As the industry wrestles with the fallout from the recent DOL ruling, many advisors are left wondering: how will this impact their business, their advisory processes and their clients’ financial future?”
Despite the DOL’s stated intention of protecting retirees’ wealth, it fails to draw the fundamental distinction between assets/wealth and income. Our area—the distribution and sale of annuities—is designed to secure income AND build wealth.
The decision is not settled law. Two separate joint actions assert that the regulation should be vacated, with an attempt to gain an injunction to postpone the initial compliance date of September 2024.
It is far from certain how and when the chips will fall here. So what can advisors do to adjust to the changing landscape?
First and foremost, ensure your business thoroughly understands the ruling and its implications. The fundamental principle is that the sale of retirement products holds the seller to a fiduciary standard, mandating different obligations to those associated with a transactional sale.
Though the ruling is pending, effective communication with clients and prospects is crucial. While the specifics may seem ‘inside baseball,’ demonstrating your expertise and adherence to the regulatory framework will be reassuring and authoritative
It is reasonable to concede to clients that the regulation is perhaps well-intentioned, but that it misses its target. There is no sense in ranting to customers! Always remind clients that you are looking to build a relationship, and the only way to do that is by making them happy. You are looking for repeat business and referrals, not a hit-and-run sale.
Clients may ask, “How do you get paid?” Be transparent: advisors earn commissions, but these do not come out of the client’s pocket—they are paid by the carrier. Yes, the carrier profits from selling its products and the salesperson gets compensated for doing so. It is the nature of insurance.
Given that IFAs often fill the gap that investment advisors leave by catering only to the very wealthy, the ruling hurts the very consumers it purports to protect. It is possible that the age-old snootiness toward agents who are paid commissions in favor of those who charge fees in effect here—regardless of the fact that commissions on annuities are paid only once, rather than milking annual dividends.
People may want to talk about “junk” fees. It is true that there can be additional fees as part of annuity products, but these are usually in the form of product add-ons—value-adds to the policies. Surrender charges are little different to IRAs or 401k early withdrawal penalties. The change here is that agents will be obliged to draw attention to any fees rather than relying on Caveat Emptor.
When it comes to the fundamentals of recommending an FIA or life policy, you can refer to the core benefits they offer, such as safety of principal and contractual guarantees.
There multiple challenges to the ruling mean we remain in a wait-and-see moment. In the interim, use this time to revisit your procedures for meeting notes and record-keeping. If you aren’t already keeping detailed records of client conversations and recommendations, now is the moment to start.
Ultimately, we must make the best of a challenging situation and see it as an opportunity. Advisors should prioritize building long-term, trust-based relationships over transactional ones. Understand your clients’ goals, risk tolerance, and financial situations thoroughly, and be able to “show your work”.
Stay tuned as we endeavor to keep you updated on the challenges to the ruling and any upcoming changes.
Keep in touch and stay informed…