New DOL Rule Changes the Way Annuity Salespeople Do Business

Old World Transition to New World

Many annuity salespeople previously touted their "independence," implying to the public that they had access to a wide array of annuities, to help address the unique needs of their clientele and show they've looked through many options to come up with a great solution for them.

In reality, they may have had access to a variety of products, but many were generally selling only one, two, or a limited number of their favorite products. They held themselves out as independent, but if every client problem or need is given the same product solution, it would be hard to substantiate the claim that they are acting as a fiduciary. In the new post-DOL fiduciary rule world, this likely isn't going to fly and could very well be considered misrepresentation.

So with this new rule, not only comes the potential for increased liability, but increased responsibility at the same time. Advisors need to offer what's best for their clients' needs, but, in order to do that, they have to first be aware and understand what products and solutions are available to fit their needs. If you only look at one product to fit a need, you will only offer one product. The more you are up to speed on products are available, and the more access you have to those products, the better you'll be able to up-hold the fiduciary duty.

A prudent approach to adjust to the new DOL fiduciary rule may be for advisors to expand their product knowledge and access on a continual basis. Offering only one product or a very limited number of products, may make it difficult to substantiate that the fiduciary duty has been upheld. This means, the old "one trick pony" will have to evolve, or they are destined to become extinct.

How to Comply

Annuity salespeople will need to increase their due diligence in solving their client's needs, but they'll also need to have a set process in place that they follow in order to determine the best products for their clients. This process that they use and the rationale and justifications for their recommendations, should be fully "documented" and saved for later as well.

In fact, this documentation is required by law, to be saved for at least six years.

As the potential for liability increases, it's likely only a matter of time before advisors are questioned about their recommendations. And if their file is empty or if the process they used to come up with recommendations for clients doesn't make a clear case that they did the right thing by them. Then they are putting themselves in an untenable position with exposure to paying damages to the client.

Going forward in order to comply with the new fiduciary rule, a good rule of thumb might be to ask yourself these two important questions.

1. If you were put on the stand and asked why you recommended a specific product or to your client, would your claims hold up?

2. Can you validate your claims with documentation that you took at the time you made the recommendation showing your due diligence?

If the answer is no, you might want to rethink the recommendations that you are making and how you've come up with those recommendations.

Shawn Sparks is the author of the book The Advisor Breakthrough. The first five chapters of his book are available here.

— Read What's Next for the DOL Fiduciary Rule? on ThinkAdvisor.