There is much to criticize about the heavy-handedness of DOL’s final regulations issued on April 6, 2016.  The core purpose of these rules is to change how advisors and agents get paid, effectively all but eliminating current commission models.  But I believe there IS a pony at the bottom of the pile under the Christmas tree – for the benefit of the consumer.  As insurers and broker-dealers begin to deal with the rules, I foresee these benefits:

  • More rational product design, less convoluted around producer comp;
  • Compensation schemes focused on long-term service;
  • If comp is “levelized” – there will be less incentive for agent-induced replacement;
  • Lower/shorter contingent surrender charges;
  • The possibility of “fungible” product options – at least in the realm of annuities.

The danger of the DOL’s focus on compensation is that it is the “camel’s nose under the tent” toward compensation regulations that have evolved in the UK, Australia, and New Zealand, where no form of commission can be paid at any level of the food chain on ANY financial product.  As a result, for example, you can only readily buy variations on term insurance in those countries, since carriers don’t find it economical to manufacture/maintain the more complex, lifetime products that – if they don’t literally have to be “sold” – certainly require more work on the part of the fee-only advisor who isn’t paid any more to advise on whole life than on term.

The other danger is that until/unless the securities and insurance industries figure out a way to support new producers in a significantly lower commission environment, the ranks of commission-compensated producers will continue to shrink, and that’s not good for consumers, carriers, or the industry as a whole!

I continue to uphold and advocate the Society of Financial Service Professional’s (FSP) place in all of this – providing high level, quality education and inspiring ethics and teamwork – supporting our members to serve their clients.  FSP’s May 18th VTC offers objective information focused on the broad community of client-facing professionals – on what is probably the most significant sea change since ERISA!”  You won’t find a non-politicized version at NAIFA or FPA, and it’s unlikely there will be much programming on this topic any time soon at local Estate Planning Councils.

While I can count on the fingers of one hand the current number of fee-only Insurance Fiduciaries consistent with Ethical Edge’s business model, I’m excited to consider this could become more mainstream in the future. Members and non-members of FSP will appreciate the May VTC’s subtext of “surviving and THRIVING as a DOL fiduciary.”  Ideally this will help attract new members from ALL the professional realms to the best kept secret in financial services: The Society of Financial Service Professionals! Just sayin’ ! Dick Weber April 27, 2016

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