The Department of Labor (DOL) has proposed changes to the fiduciary rules that would mean changes to the way some types of annuities are categorized and affecting the way they are regulated. Advisors selling annuities must become familiar with the proposed revisions to ensure that their sales practices comply with the rules.
The proposed DOL rules mean that advisors who sell annuities must be aware of the potential changes, and make sure they adhere to the stricter regulations.
Today, fixed annuities and variable annuities are regulated quite differently. Fixed annuities are treated more as insurance, while variable annuities are treated more as investments.
Variable annuities are regulated as securities under the federal securities laws. Before variable annuities can be sold to the public, they must be registered with the SEC under the Securities Act of 1933, also known as the Truth in Securities law, requiring investors to receive financial and other important information concerning securities offered for public sale, and prohibit deceit, misrepresentations and other fraud in the selling securities.
Fixed annuities are treated very differently under existing law. With fixed annuities, the issuing insurance company guarantees a specific rate of return to the contract owner, and fixed indexed annuities (FIAs) are not subject to the same laws as variable annuities. The Dodd Frank Act Reforms enacted in 2010, which included comprehensive reforms in regulating the financial services industry, exempts FIAs from the 1933 Act.
Under the proposed new rules, indexed annuities – including fixed indexed annuities—will be categorized differently, and they will be subject to different rules. The DOL is considering placing FIAs into the same category as variable annuities, with far-reaching implications for brokers and advisors.
