Insurers, and their trade groups in general, appear to be adopting a wait-and-see approach to the Department of Labor's publication of its new fiduciary standard rule. However, unlike previous comments about the potential impact of the rule, none used the word "sue" to describe their reaction.
At the same time, officials of the indexed annuity industry — which analysts say will be the industry product most affected by the rule — discounted a long-term impact on annuity sales.
Specifically, Keefe, Bruyette & Woods analysts pointed out that the "one notable negative" for insurers in the rule is that indexed annuities lose their status as a solely state-regulated product through language in the bill that removes the PTE 84-24 insurance exemption and moved the product line into the Best Interest Contract alongside variable annuities.
"We expect indexed annuity sales to be negatively impacted as result," KBW said, adding that "this is also a modest negative for retail advisors that sell the product."
But Sheryl J. Moore, president & CEO of Wink, Inc., an indexed annuity consulting and research firm, said that while she believes "there is a possibility" for an initial decline in indexed annuity sales as a result of the BICE, she believes it will be temporary.
"Once the industry has had time to adjust to the 'new normal,' sales will pick up again," she said. "The bottom line is that consumers want indexed annuities' guarantees; they want protection from market volatility and the ability to outpace CDs as well."
Rule under review
The American Council of Life Insurers, the National Association of Insurance and Financial Advisors, the Insured Retirement Institute and the Financial Services Roundtable all said they are reviewing the rule for its potential impact on their members and their business.
The harshest trade group comment was from the U.S. Chamber of Commerce. It said it will review the rule to determine if it disadvantages small businesses, limits access and choice to investment advice, or makes saving for retirement "more expensive."
However, David Hirschmann, president and CEO of the Chamber's Center for Capital Markets Competitiveness, said, "Unless we see fundamental changes, this rule will remain unworkable and we will consider every approach to address our concerns."
AIG, MetLife, Prudential Financial and Jackson National all said they were studying the rule and would not comment pending an analysis of it.
Most typical of the industry was the reaction of Jules O. Gaudreau, Jr., ChFC, CIC, president of the National Association of Insurance and Financial Advisors.
"We remain cautious, and it remains to be seen how the practical application of the rule will affect middle-market consumers who need retirement planning advice and services," Gaudreau said. He did note that NAIFA was pleased to see that the DOL incorporated its suggestions on the effective date of the rule, grandfathering of existing clients, and timing of when signatures are required on best interest contracts.
"NAIFA is in the process of completing an in-depth analysis of the rule and will continue to provide training and education to help our members deal with the rule's new requirements and restrictions," he added, stating, too, that NAIFA will still try to pass legislation amending the rule more to its liking.
Legislative challenges
However, as noted by Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, the committee's repeated efforts to get legislation through Congress, either killing the rule or crafting one to the industry's liking, have failed.
Hensarling called the DOL rule, "Obamacare for your IRA and 401(k), and, just like Obamacare, this complex rule will likely raise your costs and potentially limit your choices."
He said the "rule will hurt those Americans with low and middle incomes — ultimately jeopardizing their financial independence and retirement security."
He also said that, "At a time when there is, regrettably, little that both parties agree on, many Republicans and Democrats in Congress have been vocal in their opposition and concerns about this rule," while acknowledging that the committee's approach to have the SEC fashion a rule has failed to produce legislation able to get through Congress.
In his comments, Dirk Kempthorne, ACLI president and CEO, said the trade group will determine, after "careful review," if necessary revisions have been made to avoid adverse unintended consequences for America's savers."
Hopefully, Kempthorne said, the DOL "will have taken into account many of the 3,000 comments from members of Congress from both sides of the aisle, regulators, employers, retirement plan sponsors and others who warned of the proposed rule's potential negative impact to America's savers."
