Q: What issue on the regulatory and legislative front is of top concern to NAIFA at this year's annual meeting?
A: Our main focus going forward will be tax reform. In 1913, the National Association of Life Underwriters, NAIFA's predecessor, helped carve out during negotiations on the revenue act that created the income tax benefits for insurance products. Nearly 100 years later, we expect to be going back into negotiations.
We'll be vigilant in monitoring Congressional efforts to water down or eliminate our products' tax-favored treatment, which industry critics may advocate to advance the stated goals of tax reform: broadening the tax base and lowering tax rates. This is a danger, so we have to make our presence felt on Capitol Hill.
The scenario that's most frightening is that Congress will place an income tax on all insurance products that currently enjoy a tax advantage.Another possibility is that Congress will first tax COLI [corporate-owned life insurance] products. But once you start taxing certain policies, then others become easier targets for future taxation.
Q: What other issues will come before NAIFA members at the annual meeting?
A: We're continually monitoring the SEC as it looks to repurpose its fiduciary standard for registered investment advisors and broker-dealers. Our intel indicates the new standard might not be any different than the existing one. I will be speaking with SEC Commissioner Daniel Gallagher on Thursday [September 13] about the unintended consequences that could result from a harmonized standard, which NAIFA represents and what our members do for the American people.
A powerful fact that resonates with the SEC and members of Congress is that life insurance companies pay out $1.5 billion per day in death benefits. That's not far behind the $1.9 billion the Federal government pays daily in Social Security benefits. Also, life insurance contributes 20% to all long-term savings in the U.S.
It's essential that we protect our business model so the middle income market does not get disenfranchised by a one-size-fits-all standard. Consumers must have unfettered access to a qualified advisor who can provide competent advice and quality service.
Q: How specifically would an extension of the existing fiduciary standard to broker-dealers be harmful?
A: Many NAIFA members outside of the big cities have very small practices. If suddenly they're beholden to a fiduciary standard, they may have to pay more for errors and liability insurance to remain in the business. And many agents will elect not to do so because they can no longer afford it.
Also, if more brokers shift to fee-based practices, then middle market clients who—commissions on products sales aside—were previously receiving investment advice for free may not be able or willing to pay the $2,000 or $3,000 to sit down with an advisor. And choosing to do one's own insurance and financial planning can be a recipe for disaster.
Q: What is NAIFA's position on a re-proposed Department of Labor fiduciary standard that would apply to investment advisors subject to ERISA law?
A: We think the DOL is overreaching, going beyond the bounds of ERISA law. Congress, in a rare show of bipartisanship, shares our view. The initial proposal subjected even investment advice on IRAs to the DOL fiduciary definition.
During last year's annual meeting in Washington, some 1,000 attending members blanketed Capitol Hill—and the DOL thereafter pulled their original proposal. We don't know what the DOL now intends, but we've heard rumors the re-proposed standard may not be much different than the original. We shall see.
