Charlie Gipple's Big 16 in a DOL Rule - Private Right of Action World

By: Charlie Gipple, CLU®, ChFC®       Senior VP of Sales and Marketing,

Partners Advantage

Questions are whirling around about the upcoming DOL fiduciary rule. Is it really going to go through? Will the new administration make changes?  Can we leave things the way it is now? These are all valid things to consider despite the fact right now the DOL rule goes into effect in April 2017. But what if it remains status quo?

What we need to remember that this is the third time in 11 years the fixed indexed annuity world has been faced with a rule or regulation that would be daunting. All three of these “rules” sought to effectively take the annuity products and plug them into a securities world. The NASD Notice went through in 2005, while the Rule 151A by the Securities and Exchange Commission was vacated in 2010.

Now the industry is faced with the DOL proposing the agents be held to a “fiduciary standard” when working with qualified money; a standard that, up until now, has been largely associated with securities sales via “fee-based advisory” platforms. Furthermore, for indexed annuity sales with qualified money, after April 10, 2017 an agent has to be supervised by a “Financial Institution.” 

What should IMOs and financial professionals ask during this “in-between world” of uncertainty on whether the DOL will go through or not? This is especially stressful for the IMO whether they file to be a “Financial Institution” or not.

Here is my “Big 16” of items an IMO looking to become a financial institution should consider. However, even if the IMO does NOT become a “Financial Institution,” they will likely still need to implement some of the below IF the DOL Rule were to go through. Why? The reason is whatever financial institution the IMO relies on will most likely still hold them accountable for certain things to share the liability in the “Private Right of Action” world.

Big 16 items to Consider:

1. Product platform (those that abide by the “reasonable comp” rule)
2. Agent background checks
3. Field force training on “fiduciary matters”
4. Web-based financial planning tools
5. DOL compliance review for client and agent facing material
6. Best Interest Contract creation
7. Negative Consent: IE. Notice to “retirement investors” of the fiduciary status
8. Fact finding, risk tolerance, software sales system for “uniform” recommendations from client to client with similar objectives
9. Staff and systems for suitability review
10. Email surveillance
11. Website for data retention and disclosures
12. Ongoing compliance (audits)
13. Designate person to identify conflicts of interest
14. Recordkeeping/file retention for six years
15. Primary legal liability
16. Technology for business issuance, review and case management

Looking at this list can be daunting, especially if you implement all of these items. The question for the IMOs is “do I assume the DOL will go through and I invest in this stuff or do I assume the DOL is not going to happen and thus not invest in it at all?”

In reality, every IMO principal needs to consider putting in place some of the “Big 16” items whether or not the DOL rule is vacated or not. Because most likely changes like what’s found in the DOL rule are going to come eventually. It’s where it’s wise to invest into the training resources, technology, compliance, holistic planning, etc. and put them into place no matter what.

This places urgency on many shoulders should the April 10, 2017 date become official. But it’s best to be prepared rather than wishing you had.

Looking to find out more about how Partners Advantage can help you prepare? Contact me at 888-251-5525, Ext. 358.


For financial professional use only. Not for use with consumers.

Discussion of the Department of Labor (DOL) fiduciary rule is based on the information available from the DOL, pending litigations, and other sources deemed to be reliable as of the date this article was written. The views and opinions of author are subject to change as guidance from DOL becomes available and court opinions are published.

This article should not be considered legal advice and is intended for educational purposes only.

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How You Can Help Clients Find Financial Confidence for Retirement

The visual picture of retirement is normally laid-back days spent traveling, enjoying hobbies, and being with family and friends. The problem is many people don’t properly plan for retirement and this vision is never achieved. The other issue is companies are moving away from pension plans, so the responsibility of having enough income for retirement is landing largely on the consumer. This is where a financial professional can step in and provide options for helping build a stable financial future for their client.

One option to share with your client is the various types of annuities, as many of them can bridge the gap between money received from pensions and social security and the money needed to handle living expenses during retirement. Fixed indexed annuities can also provide guaranteed* lifetime income and have the ability to accumulate wealth for retirement. It can offer protection against certain risks that could potentially deplete a client’s future savings, as well as provide built-in flexibility in case needs change.

The clients who are able to maintain their standard of living during retirement, have assets for times they may need them, and have the potential to accumulate wealth will most likely be interested in an annuity purchase. This is why many financial professionals often feel confidence when recommending fixed indexed annuities to clients. Of course, they aren’t going to be suited for everyone, but they may be a good fit for those who:

• Seek to complement other income sources, such as Social Security
• Are looking to protect premium, while also seeking potential market indexed growth
• Don’t already have a type of defined benefit pension plan or guaranteed* lifetime income in place
• Desire a flexible plan that is adaptable to changing needs
• Looking for ways to convert sums of cash from retirement plans into immediate income

While sharing about annuities, make sure to inform each client about all aspects of the product before making a purchase. Helping them make informed decisions about their future now can help them actually enjoy those hard-earned days during retirement.

FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR USE WITH CONSUMERS.

*Guarantees provided by annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank of the FDIC. A fixed indexed annuity can provide annuitization as a means to provide retirement income payments. An alternative option to annuitization could be the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged.

Annuities are designed to meet long-term needs for retirement income. They provide guarantees against the loss of principal and credited interest, and the reassurance of a death benefit for beneficiaries. Please note that in order to provide a recommendation to a client about the transfer of funds from an investment product to a fixed insurance or annuity, you must hold the proper securities registration and be currently affiliated with a broker/dealer.  If you are unsure whether or not the information you are providing to a client represents general guidance or a specific recommendation to liquidate a security, please contact the individual state securities department in the states in which you conduct business.

This information is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Encourage your clients to consult their tax advisor or attorney.

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FIAs for Guaranteed* Retirement Income

In today’s world, the markets can change from day to day. There can be a pattern of growth or a quick downhill slide, which can make some clients nervous about planning for the future. This is why configuring the “Gold Standard” safe withdrawal rate with fixed indexed annuities was so profound to the financial industry and retirement planning.

The year was 1994, and there was a CFP from California that would create one of the most profound “rules of thumb” for retirement income that has ever been created. William Bengen wrote an article which appeared in the Journal of Financial Planning, and it released the results of this very profound study that he had just undertaken.

This study is what started the “Gold Standard” safe withdrawal rate of 4%. William basically said that even though over time the market had averaged around 10%, in the distribution years, it doesn’t mean that a client can “safely” withdraw 10% from their portfolios. So, what William did is he back tested hypothetical retirement “start dates,” assuming a 50% stock and 50% bond portfolio all the way back to the 1920s, using the actual stock and bond market performance. After the analysis was said and done, he said that consumers were “safe” by withdrawing 4% of their initial portfolio value per year adjusted for inflation or deflation. By “safe,” what he meant was that the 4% distributions were very unlikely to spend down the client’s portfolio/retirement money before the end of the 30-year retirement.

As a matter of fact, in his study, he had a 100% success rate using the 4% rule for retirement income. As a result of this study, securities reps for almost two decades have been living and dying by this rule. If a client has a million dollars at retirement, then the client should not take more than $40,000 during the first retirement year, for example.

A later study was done in 2013 that was coauthored by Morningstar Inc. It established, in this new world of volatile markets and low interest rates, that the new “safe withdrawal rate” is actually 2.8%. The study indicated that with today’s low interest rates, market volatility, and SEQUENCE OF RETURNS RISK that there is almost a 52% chance of failure using the 4% rule. Would you get on an airplane if there was a 48% chance of having the number of landings equal the number of takeoffs?

So, how do you handle this risk? Before looking at what a GLWB can do for this client on a “guaranteed* basis,” I want to point something out. When you look at this risk that we just discussed, which is the client losing 20% of their portfolio value or taking a major pay cut in retirement, or having to delay retirement, this risk is just as catastrophic as say a car crash, a medical emergency, a house fire, etc. Or, maybe even death itself. What is my point? My point is, when risks in our lives are catastrophic, should they occur, we take actions to hedge those risks. What do we use? We use something called insurance.

• Car crash = Auto insurance
• House fire = Homeowners’ insurance
• Death = Life insurance

 Why would you treat this shortfall risk as anything different? Is it not “worth” insuring?

Learn more about fixed indexed annuities for guaranteed* income. Download our complete whitepaper: “The Stars are Aligned for Fixed Indexed Annuities and Guaranteed Lifetime Withdrawal Benefits.”

Fill out my online form.

FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR USE WITH CONSUMERS.

*Guarantees provided by annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank of the FDIC.  Guaranteed lifetime income available through annuitization of the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged.

Annuities are designed to meet long-term needs for retirement income. They provide guarantees against the loss of principal and credited interest, and the reassurance of a death benefit for beneficiaries. Please note that in order to provide a recommendation to a client about the transfer of funds from an investment product to a fixed insurance or annuity, you must hold the proper securities registration and be currently affiliated with a broker/dealer.  If you are unsure whether or not the information you are providing to a client represents general guidance or a specific recommendation to liquidate a security, please contact the individual state securities department in the states in which you conduct business.

This information is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Encourage your clients to consult their tax advisor or attorney.

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