On June 9th the Department of Labor (DOL) Fiduciary Rule goes into effect. Will it survive long term? That is still up for some debate. However, the rule is moving forward and as an insurance producer you need to know how to maintain your independence without causing panic in your practice.
Acting as a Fiduciary
When you are making recommendations and or advising a prospect or client regarding transactions involving their qualified funds after June 9, 2017 you are acting as fiduciary. You will be required by law to act in a prudent manner and with loyalty to your client or prospect regardless of the impact on your agency or the companies you represent. You must always act in the client's best interest, not yours or that of the company you represent.
Complying with the Rule
Under this rule it is prohibited to receive direct or indirect compensation for this advice. However the rule provides relief to those seeking to receive compensation directly or indirectly for the sale of financial products. Relief from these prohibited transactions may come in the form of Prohibited Transaction Exemption 84–24, or the Best Interest Contract Exemption (BICE).
If you choose relief under the rule under PTE 84–20 you assume all liability for the recommendations that you make. You must disclose all charges and fees, as well as any conflicts of interest, and compensation that you receive either directly or indirectly.
If you choose relief under the Best Interest Contract Exemption you will need a financial institution to review your recommendations and sign the contract on your behalf. Broker/Dealers, banks, Registered Investment Advisors, and trust companies are considered financial institutions capable of signing the BICE. Insurance marketing organizations, or IMOs, are not. Working with a financial institution under the Best Interest Contact Exemption may transfer the liability of receiving commissions on this prohibited transaction from you to the financial institution.
Documenting Client Interactions
One important factor to consider is that you will need a system that captures information when meeting with clients. This would include the process for their assessment or analysis and your advice or recommendations. You also need to record your client's signature confirming their full understanding and agreement to the recommendation. Also, if you are an insurance-licensed individual and moving qualified funds, you will need to meet the requirements under the BIC (Best Interest Contract).
There are 6 key areas the BIC would encompass:
1) Identify client interests, goals, time horizons and risk tolerance
2) Document key factors that were considered in making the recommendation
3) Record client's action agreement with information gathered
4) Show meaningful comparisons & reason for the solution
5) Promote diversification - a key fiduciary duty to help minimize risk of investment
6) Meet the time horizon needs of the client
Software Can Help
There are new solutions that will allow you to make the choice to remain independent and not have to be captive to one Independent Marketing Organization (IMO). Specialized software can help you avoid high fees, as some IMO's are charging double for this protection and supervision. You might be asking, where can I find something that can help me assess, analyze, advise and keep record of all of the steps? You need affordable software that is insurance-centric and DOL compliant.
Compliant software could help you have confidence in moving forward and growing your business. This software allows you to maintain your independence as a financial advisor and make product recommendations in the best interest of your client.