T he De pa rtme nt o f L a b o r Co nflic t o f I nte re st Rule - - PowerPoint PPT Presentation

T he De pa rtme nt o f L a b o r Co nflic t o f I nte re st Rule s

A Co mpre he nsive Ove rvie w o f the ne w DOL Ruling

I mpo rta nt Disc lo sure s

T his ma te ria l is g e ne ra l in na ture . It is no t inte nd e d a s inve stme nt o r e c o no mic a d vic e , o r a re c o mme nd a tio n to b uy o r se ll a ny se c urity o r a d o pt a ny inve stme nt stra te g y. Ad d itio na lly, it d o e s no t ta ke into a c c o unt the spe c ific inve stme nt o b je c tive s, ta x a nd fina nc ia l c o nd itio n o r pa rtic ula r ne e d s o f a ny spe c ific pe rso n. We e nc o ura g e yo u to se e k the a d vic e o f a n inve stme nt pro fe ssio na l who c a n ta ilo r a fina nc ia l pla n to me e t yo ur spe c ific ne e d s. F e d e ra l ta x la ws a re c o mple x a nd sub je c t to c ha ng e . Aimc o R Gro up, L L C; Aimc o R me mb e r firms no r its re pre se nta tive s g ive le g a l o r ta x a d vic e . Clie nts sho uld c o nsult with the ir a tto rne y o r le g a l a d viso r fo r a nswe rs to the ir spe c ific q ue stio ns. T his pre se nta tio n d o e s no t c o nstitute le g a l o r inve stme nt a d vic e . Ple a se c o nsult with yo ur ta x o r le g a l a d viso r. T he info rma tio n pro vid e d he re in is g e ne ra l in na ture a nd sho uld no t b e c o nstrue d a s le g a l o r ta x a d vic e , a s suc h o pinio ns c a n b e re nd e re d o nly whe n re la te d to spe c ific situa tio ns. T he info rma tio n pre se nte d he re is pro vid e d a t a hig h a nd no n-ind ivid ua lize d le ve l. E a c h a spe c t o f the DOL rule ma y b e sub je c t to a d d itio na l c o nd itio ns a nd re q uire me nts. T he info rma tio n pro vid e d is no t le g a l a d vic e . Ple a se c o nsult yo ur le g a l a d viso r if yo u ha ve q ue stio ns. F OR F INANCIAL PROF E SSIONAL USE ONL Y

• 1,023 pa g e s o f ne w, c o mplic a te d re g ula tio ns
• I

mpo se ne w lia b ilitie s & re q uire me nts o n e ve r

y me mbe r

• f o ur

industry

• Co nta in no “Safe - Har

bor ” la ng ua g e o r c he c klist fo r a dviso rs o r

b ro ke r/ de a le rs

• T

he Offic e o f Ma na g e me nt & Budg e t e stima te s it will c o st o ur industry $19 Billio n to c o mply with the ne w re q uire me nts

• I

ndustry fo c us ha s b e e n o n c o mpe nsa tio n. BI CE he lps a ddre ss tha t.

Mor e impor tant foc us should be on me e ting fiduc iar y obligations, r e gar dle ss of how we ge t paid

• Ne w de finitio n o f F

iduc ia ry unde r the rule s is e ffe c tive Apr

il 10, 2017.

• T

he full se t of r ule s and r e quir e me nts apply as of Januar y 1, 2018

T he De pt. o f L a b o r Co nflic t

• f I

nte re st Rule

Re q uire s a ll who pro vide re tire me nt inve stme nt a dvic e to :

• E

RI SA-g o ve rne d re tire me nt pla ns (i.e . 401k pla ns),

• Spo nso rs & fiduc ia rie s o f suc h pla ns,
• Pa rtic ipa nts & b e ne fic ia rie s o f suc h pla ns,
• I

RA o wne rs & I RA b e ne fic ia rie s

to a b ide b y a “fiduc ia ry” sta nda rd – putting the ir c lie nts’ be st

inte r e sts b e fo re the ir o wn pro fits.

F irms a nd a dvise rs will b e re q uire d to ma ke prude nt inve stme nt re c o mme nd a tio ns witho ut re g a rd to the ir o wn inte re sts, o r the inte re sts o f tho se o the r tha n the c usto me r; c ha rg e o nly re a so na b le c o mpe nsa tio n; a nd ma ke no misre pre se nta tio ns to the ir c usto me rs re g a rding re c o mme nde d inve stme nts.

Source: U.S. Dept. of Labor - www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource- center/fact-sheets/dol-final-rule-to-address-conflicts-of-interest

T he De pt. o f L a b o r Co nflic t

• f I

nte re st Rule

De finitio n o f Advic e

Source: U.S. Dept. of Labor - www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource- center/fact-sheets/dol-final-rule-to-address-conflicts-of-interest

T hink “Inve stme nt Advic e ”

Co ve re d inve stme nt a dvic e is de fine d a s a re c o mme nda tio n to a pla n, pla n fiduc ia ry, pla n pa rtic ipa nt a nd b e ne fic ia ry o r I RA o wne r fo r a fe e o r o the r c o mpe nsa tio n, dire c t o r indire c t, a s to the a dvisa b ility o f b uying , ho lding , se lling o r e xc ha ng ing se c uritie s o r

• the r inve stme nt pro pe rty, inc luding re c o mme nda tio ns a s to the

inve stme nt o f se c uritie s o r o the r pro pe rty a fte r the se c uritie s o r o the r pro pe rty a re ro lle d o ve r, tra nsfe rre d o r distrib ute d fro m a pla n o r I RA. De finitio n o f Advic e

De finitio n o f Advic e

Source: U.S. Dept. of Labor - www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource- center/fact-sheets/dol-final-rule-to-address-conflicts-of-interest

T hink “Ac c ount/ Por tfolio Str uc tur e & Manage me nt”

Co ve re d inve stme nt a dvic e a lso inc lude s re c o mme nda tio ns a s to the ma na g e me nt o f se c uritie s o r o the r inve stme nt pro pe rty, inc luding , a mo ng o the r thing s, re c o mme nda tio ns o n inve stme nt po lic ie s o r stra te g ie s, po rtfo lio c o mpo sitio n, se le c tio n o f o the r pe rso ns to pro vide inve stme nt a dvic e o r inve stme nt ma na g e me nt se rvic e s, se le c tio n o f inve stme nt a c c o unt a rra ng e me nts (e .g ., b ro ke ra g e ve rsus a dviso ry); o r re c o mme nda tio ns with re spe c t to ro llo ve rs, tra nsfe rs, o r distrib utio ns fro m a pla n o r I RA, inc luding whe the r, in wha t a mo unt, in wha t fo rm, a nd to wha t de stina tio n suc h a ro llo ve r, tra nsfe r, o r distrib utio n sho uld b e ma de . De finitio n o f Advic e

Source: U.S. Dept. of Labor - www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource- center/fact-sheets/dol-final-rule-to-address-conflicts-of-interest

A "re c omme nda tion" is a c o mmunic a tio n tha t, b a se d o n its c o nte nt, c o nte xt, a nd pre se nta tio n, wo uld re a so na b ly b e vie we d a s a sug g e stio n tha t the a dvic e re c ipie nt e ng a g e in o r re fra in fro m ta king a pa rtic ula r c o urse o f a c tio n. T he mo re individua lly ta ilo re d the c o mmunic a tio n is to a spe c ific a dvic e re c ipie nt o r re c ipie nts, the mo re like ly the c o mmunic a tio n will b e vie we d a s a re c o mme nda tio n.

De finitio n o f Re c o mme nda tio n

De finitio n o f Re c o mme nda tio n

Source: U.S. Dept. of Labor - www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource- center/fact-sheets/dol-final-rule-to-address-conflicts-of-interest

Whe n doe s a r e c omme ndation make one a fiduc iar y?

I n o rde r fo r a re c o mme nda tio n to c o nstitute fiduc ia ry inve stme nt a dvic e , it must b e re nde re d fo r a "fe e o r o the r c o mpe nsa tio n." "F e e o r o the r c o mpe nsa tio n, dire c t o r indire c t" me a ns a ny e xplic it fe e o r c o mpe nsa tio n fo r the a dvic e re c e ive d b y the pe rso n (o r b y a n a ffilia te ) fro m a ny so urc e , a nd a ny o the r fe e o r c o mpe nsa tio n re c e ive d fro m a ny so urc e in c o nne c tio n with o r a s a re sult o f the re c o mme nde d purc ha se o r sa le o f a se c urity o r the pro visio n o f inve stme nt a dvic e se rvic e s inc luding , tho ug h no t limite d to , suc h thing s a s c o mmissio ns, lo a ds, finde r's fe e s, a nd re ve nue sha ring pa yme nts.

De finitio n o f Re c o mme nda tio n

De finitio n o f Re c o mme nda tio n

Re c omme ndations that give r ise to fiduc iar y inve stme nt advic e r e sponsibilitie s inc lude r e c omme ndations made e ithe r dir e c tly or indir e c tly (e .g. thr

• ugh or

toge the r with any affiliate ) by a pe r son who:

• Re pre se nts o r a c kno wle dg e s tha t the y a re a c ting a s a fiduc ia ry

within the me a ning o f E RI SA o r the I nte rna l Re ve nue Co de (Co de );

• Re nde rs a dvic e pursua nt to a writte n o r ve rb a l a g re e me nt,

a rra ng e me nt o r unde rsta nding tha t the a dvic e is b a se d o n the pa rtic ula r inve stme nt ne e ds o f the a dvic e re c ipie nt; o r

• Dire c ts the a dvic e to a spe c ific re c ipie nt o r re c ipie nts re g a rding

the a dvisa b ility o f a pa rtic ula r inve stme nt o r ma na g e me nt de c isio n with re spe c t to se c uritie s o r o the r inve stme nt pro pe rty o f the pla n

• r I

RA.

De finitio n o f Re c o mme nda tio n

It se e ms that almost anything an advisor says to a c lie nt with r e gar d to an E RISA- gove r ne d r e tir e me nt plan or IRA will be c onstr ue d as advic e that make s the advisor (and the advisor ’s fir m) a fiduc iar y, inc luding:

• Wha t funds o r inve stme nts sho uld b e o ffe re d in a 401k pla n o r I

RA

• Wha t a 401k pa rtic ipa nt o r I

RA o wne r sho uld inve st in

• Re c o mme nda tio ns a b o ut ro lling (o r no t ro lling ) 401k a sse ts to a n I

RA

• Whe the r o r no t to ta ke a distrib utio n fro m a 401k pla n o r I

RA

• Ho w muc h to ta ke a s a distrib utio n fro m a 401k pla n o r I

RA

• Wha t to do with 401k/ I

RA distrib utio n pro c e e ds

DOL Co nflic t o f I nte re st Rule s

Be c a use the re a re no “Sa fe Ha rb o r” rule s fo r a dviso rs to fo llo w, a nd b e c a use no g o ve rnme nta l a g e nc y c o uld po ssib ly mo nito r a nd e nfo rc e e a c h inte ra c tio n a dviso rs a nd firms ha ve with c lie nts:

T he U.S. judic ia l syste m will de te rmine , ove r time , the rule s of the roa d a s a re sult of la wsuits (ma inly c la ss- a c tion) broug ht a g a inst broke r/ de a le rs a nd othe r fina nc ia l institutions.

T he ma in b e ne fic ia rie s o f the DOL Co nflic t o f I nte re st rule s will b e tria l a tto rne ys!

DOL Co nflic t o f I nte re st Rule s

What doe s all this r e ally me an?

• T

he wa y firms a nd a dviso rs e ng a g e with c lie nts will c ha ng e

• Ho w re ve nue is g e ne ra te d fo r firms a nd a dviso rs will c ha ng e
• Ne w/ mo re re spo nsib ilitie s fo r firms a nd a dviso rs
• Ne w/ mo re lia b ilitie s fo r firms a nd a dviso rs
• I

nc re a se d time / c o st fo r c lie nt suppo rt will fo rc e a dviso rs to fo c us

• n the c lie nts tha t g e ne ra te the mo st re ve nue
• T

he la ndsc a pe o f o ur industry will c ha ng e DOL Co nflic t o f I nte re st Rule s

Highe r Ce r tainty

• She lf spac e c ompe tition, sma lle r o rg a niza tio ns will ha ve diffic ulty

r e maining r e le vant.

• Diffic ulty in ge tting mar

ke ting appr

• vals
• Co mplia nc e will var

y ac r

• ss time line s and r

e quir e me nts, inc re a sing risk

• f c usto miza tio n de ma nds.
• F

irms will pull suitability in- house (ho w do e s this a ffe c t insura nc e ? )

Mode r ate Ce r tainty, High Impac t

• L

ar ge fir ms will ac quir e sma ll firms

• F

ir ms will disc our age r e lationships a nd b e le ss influe nc e d b y the m in

the future .

DOL I mpa c t a t a F irm L e ve l

DOL I mpa c t a t the Adviso r L e ve l

Highe r Ce r tainty

• Inc r

e asing pe ne tr ation of F IA in br

• ke r

age c hanne ls – la rg e r B/ Ds will

c le a r F I A in-ho use , inste a d o f tre a ting a s OBA

• Signific ant advisor

move me nt is e xpe c te d in the ne xt two ye a rs –

b e twe e n firms, re tire me nts, e tc .

• Adviso rs will ha ve le ss individual disc r

e tion in wha t o ptio ns the y a re

a b le to o ffe r a nd who the y use fo r OBAs (if a ny).

• L

ife insura nc e / pro te c tio n pla nning will b e c o me mor

e pr e vale nt in this

spa c e b ut most like ly highe r

r e gulate d as we ll.

Mode r ate Ce r tainty, High Impac t

• Point of sale inte r

ac tions with whole sale r pr e se nc e ar e e xpe c te d to c hange . (le ss POS o n the fund a nd a nnuity side , inc re a se d ne e d fo r

insura nc e POS)

DOL I mpa c t a t a n Adviso r L e ve l

Othe r DOL I mpa c ts (No t F irm o r Adviso r)

Highe r Ce r tainty

• Ca rrie rs will e xpe rie nc e inc re a se d e xpe nse pr

e ssur e s due to DOL

c o mplia nc e

• Sig nific a nt de c line in annuity sale s o ve r sho rt-te rm, lo ng e r-te rm o utlo o k is unc e rta in
• Ma rke t will de mand lowe r

pr ic e d pr

• duc ts, e spe c ia lly impa c ting the funds spa c e
• Advisor

y c hanne ls will c ontinue to gr

• w (he a dc o unt a nd sa le s o f RI

A a nd dua lly re g iste re d re pre se nta tive s a t b ro ke ra g e firms) while numb e r o f b ro ke ra g e / c o mmissio ne d b a se d a dvise rs is e xpe c te d to de c line

• Additional r

e gulations tha t will sig nific a ntly impa c t industry a re e xpe c te d

• I

nc re a se s in te c hno lo g y a nd digital disr

uption will c o ntinue , spe c ific a lly c o nc e rning

dig ita l/ ro b o a dvic e a nd de c isio n suppo rt

• Go to ma rke t tr

aining ne e ds, with who le sa le rs a nd a dviso rs, will b e hig h o ve r the ne xt

se ve ra l ye a rs

Mode r ate Ce r tainty, High Impac t

• T
• tal annuity busine ss will de c line
• Se r

vic e will matte r mor e in the future

Othe r I mpa c ts (No t firm o r a dviso r re la te d)

Why We Sho uld Be E xc ite d

L

• ng e vity

(L iving to o L

• ng )

Ma rke t Vo la tility I llne ss (L

• ng -T

e rm Ca re ) T ra nsfe r to the Ne xt Ge ne ra tio n

Whe n ac ting as a fiduc iar y you have an

• bligation to PROT

E CT AGAINST the se 4 r isks.

Me e ting a F iduc ia ry Sta nda rd

Othe r DOL I mpa c ts (No t F irm o r Adviso r)

Aimc o R Gro up, L L C is a le a ding na tio na l insura nc e ma rke ting

• rg a niza tio n c o nsisting o f 42 me mb e r c o mpa nie s tha t fo c us o n

distrib uting a nd se rvic ing insura nc e a nd re tire me nt pro duc ts thro ug h a va rie ty o f c ha nne ls a nd pla tfo rms inc luding inde pe nde nt fina nc ia l a dviso rs, b ro ke r-de a le rs, pro pe rty a nd c a sua lty firms, b a nks a nd dire c t-to -c o nsume r ma rke te rs. F

• r mo re info rma tio n o n Aimc o R Gro up, L

L C c o nta c t: 866.428.0108

John C. Ziambras Marc R. Ve rbos

Pre sid e nt & CE O Vic e Pre sid e nt, Busine ss De ve lo pme nt jo hn.zia mb ra s@ a imc o rg ro up.c o m ma rc .ve rb o s@ a imc o rg ro up.c o m

Ab o ut Aimc o R Gro up, L L C

T he info rma tio n pre se nte d he re is pro vide d a t a hig h and no n-individualize d le ve l. E ac h a spe c t

• f the DOL rule ma y b e sub je c t to a dditio nal c o nditio ns a nd re q uire me nts. T

he info rma tio n pro vide d is no t le g a l a dvic e . Ple a se c o nsult yo ur le g a l a dviso rif yo u ha ve q ue stio ns.