So, let’s assume that the new DOL rule is enacted as written (a whole different discussion can be had another time). What are you going to do about life insurance now? Most of us know already that we only sell life products in a very narrow area of qualified plans, such as split-funded plans or pension-max/IRA-max sales, and we expect that there will be negligible impact on what else we do- right? Wrong!
The expectation that just because you aren’t talking about a qualified plan eliminates compliance with this new rule is easy to overlook. If you are an advisor that has clients with IRA rollovers that also have life insurance needs, you are directly in the sights of the new DOL rule. If these customers have signed a BIC (Best Interest Contract Exemption) for their IRA rollover, it probably says that their relationship with your broker/dealer and you is a “best interest” relationship. This opens up your life insurance sale (and any other recommendations you make) to the disclosures and compliance required by the rule. This shouldn’t stop you from discussing or selling life insurance, it just changes the process that you will have to go through. Every different broker/dealer will decide how they are going to handle this process and what additional paperwork, policies, procedures and costs will be required from you and your customer.
The rule is clear that recommendations given relative to a qualified plan are subject to the fiduciary, best interest duty of care. The broker/dealer world is split as to whether they are responsible as a fiduciary to the client for all advice or only the recommendations specifically relating to qualified accounts. At this time most of the large wirehouse firms are taking the position that the BIC agreement is at a customer level and thus it specifies that all parts of their relationship with the customer are subject to the additional planning, disclosures and oversight prescribed by the rule. In the long run, this should improve the consistency of the planning that customers receive, but it will add more paperwork to the process. The flip side of this position is a transactional BIC that applies to each transaction and not the relationship with the customer. This situation eliminates the requirement that each non-qualified recommendation be considered a fiduciary relationship and will allow for traditional sales of life insurance to continue regardless of other, qualified accounts with the customer.
In either case, those advisors affiliated with a broker/dealer will have more robust planning tools as a result of the new rule, and that should help create additional reasons for financial advisors to talk to their clients about risk planning and insurance needs. This process will create more opportunities for the public customer to get the life insurance planning that they have not been getting in the past, and give more chances for financial advisors to provide the most appropriate products to fulfill those needs.
Regardless of the position a broker/dealer takes, non-registered agents don’t have to be concerned about making any non-qualified life insurance sales to any customer. However, if someone needs to give advice or make a sale in the qualified arena, i.e. split-funded plans, pension max, RMD max or IRA max, you will need to have a relationship with a “qualified financial institution”. QFI is currently defined as a bank, life insurer, broker/dealer or RIA, but there may be some additional exceptions before the planned inception date of April 10, 2017. While this won’t be quite as difficult as being registered with a BD, it will create additional paperwork, compliance and cost to the process.
