Industry Reaction to Obama’s Push for Fiduciary Standard

[DHK]

It'll open a whole new opportunity for lawsuits and you will get the chance to defend everything you said, did, and represented in court.

You will have your words twisted around. Here's a humorous story on how your words and reputation can be twisted:

What your prospects really think of you!

What your prospects really think of you!

Texas and Oklahoma are bitter college football rivals. There's no middle ground.

One day a Texas football fan was driving through Oklahoma on his way to another state. (Texas football fans never drive to Oklahoma, they only drive through Oklahoma to get somewhere else.) The Texas football fan stops at an Oklahoma gas station to refuel.

A little girl walks by and suddenly is attacked by a vicious pit bull. The dog tears her dress and grabs her arm. The Texas football fan sees the screaming little girl and runs to her rescue. He grabs the pit bull and struggles valiantly. The dog tears into his flesh. Blood streams from his arm and leg. Finally, in a desperate move, the Texas football fan gets the upper hand and kills the pit bull.

A reporter for the Oklahoma Times Newspaper watches the drama unfold. After the pit bull is dead he approaches the Texas football fan and says:

"Wow! What a hero! This will make great headlines in tomorrow's paper. Let me take your picture and ask a few questions."

The Texas football fan wipes the blood off his arm and leg and has his picture taken.

"We'll put a great headline and story under your picture in tomorrow's paper," says the reporter. "Maybe, the headline could read, 'Hero Saves Little Girl.' By the way, where are you from?"

"From Texas," says the hero.

The reporter thought for a moment and replied, "Well, since you're from Texas I guess we could change the headline to read: 'Man Rescues Child.' I can kind of overlook that you're from Texas, but tell me, you at least root for the Oklahoma football team, don't you?"

The Texan replied, "No. To tell you the truth, I am a avid Texas football fan."

The reporter left to write up the story. The Texan decided to stay around for a day so he could read his headline and story in the next morning's paper.

The next morning, the Texas football fan picks up the Oklahoma Times Newspaper and on the front page was the headline:

"Man Kills Family Pet!"

Ouch.

The Oklahoma reporter certainly had his opinion of the man from Texas.

I would rather not go through anything like this, than have to defend myself.

 

[scagnt83]

perhaps a rigorous exam (like the 7 but more relevant to everyday transactions)

The current suitability standard simply gives crooked agents that opportunity to be crooked, with little if any liability.

You dont know what you are talking about.

A series 7 operates under the Suitability Standard and not the Fiduciary Standard. And there are just as many complaints against stock brokers as there are against insurance agents.

And a 7 is held to less liability than an insurance agent since most contracts limit the Series 7's clients to arbitration.


The problem is not with the "spirit" of the Fiduciary Standard. The problem is with the proposed definition of the Fiduciary Standard.

When politicians and lawyers try to quantify "what is best", it rarely works out to the benefit of the average joe. They should concentrate on prudence, transparency, full disclosure, and eliminating conflicts of interest. (which is what ERISA currently concentrates on, but is not enforced in that way)

The current and proposed definition are not in the spirit of the true Fiduciary Standard. Especially the one legislated by ERISA.

If they would actually enforce the laws they have on the books and not let special interest groups and their money manipulate enforcement there would be minimal need for changes.

And if the true spirit of the Fiduciary Standard was implemented in the insurance industry as a whole, then it would eliminate your job as a career agent since it clearly creates a conflict of interest.

 

[nylife11023]

You dont know what you are talking about.

A series 7 operates under the Suitability Standard and not the Fiduciary Standard.

This is true. But I was talking (or at least meant to talk) about Registered Investment Advisors many if not all of whom work under the fiduciary standard.

The problem is not with the "spirit" of the Fiduciary Standard. The problem is with the proposed definition of the Fiduciary Standard.

Well, in that case, if this ever goes through, insurance agents will be screwed since they don't have a seat at the table.

Fortunately the carriers don't want to see the standard adopted for "their" agents so I don't see this happening any time soon... but it will happen eventually.

And if the true spirit of the Fiduciary Standard was implemented in the insurance industry as a whole, then it would eliminate your job as a career agent since it clearly creates a conflict of interest.

Now who doesn't know what they are talking about?

Lord, what fools these mortals be!
Shakespeare, A Midsummer Night's Dream, Act 3 scene 2

 

[Charpress]

Now who doesn't know what they are talking about?

Assuming you are an agent selling only NYLife products, I'd like to see you make the case that you can put your clients' interests first.

In the first place, if you are aware of a better product from, let's say Lincoln, do you tell them to go to Lincoln? Do you sell them the closest NYLife product to what is available elsewhere even though not as good a fit?

In my state (and others, I assume), only legal reserve companies are covered by our laws that provide insurance against carrier insolvency. Further, legal reserve companies have to pledge their assets pro-rata towards the insolvency of any other legal reserve company. In essence, all legal reserve companies would have to go under before any client lost a dime. Mutual companies are exempted from this law. Could a client argue that selling any NYLife product is against the clients' best interests?

 

[scagnt83]

This is true. But I was talking (or at least meant to talk) about Registered Investment Advisors many if not all of whom work under the fiduciary standard.

You mean IARs (series 65 or 66).... but I digress...

IARs have the ability to work under the Fiduciary Standard. But last statistics I saw around 70% of them work under a "hybrid" model. That means they give "advice" as a Fiduciary and then turn around and sell commissionable products based on that advice under the Suitability Standard.

This is one of the problems with the current definition/regulations of the Fiduciary Standard. And the proposed changes will not fix it in their current form.

Well, in that case, if this ever goes through, insurance agents will be screwed since they don't have a seat at the table.

Fortunately the carriers don't want to see the standard adopted for "their" agents so I don't see this happening any time soon... but it will happen eventually.

Not true at all.

Some of the biggest lobbyists (other than the big BDs and Banks) that have helped influence the current changes are major insurance carriers such as Met, NYL, NWM, Allianz, etc.

In fact, they have tried hard to carve out an exception for insurance products to the proposed DOL definition of Fiduciary. At first they were very hopeful that their efforts would work. Now that it has become a political football they are not so optimistic.

But as I have mentioned before, this would only apply to Qualified Transactions.

Now who doesn't know what they are talking about?

As a former NYL career agent, and as someone who has followed this Fiduciary debate closely, I know exactly what I am talking about.

If insurance agents were required to operate under the proposed definition of Fiduciary for all of their business/products; the career agency system would cease to exist as we know it.

In fact the whole insurance sales compensation system might cease to exist as we know it...

But it would be impossible for a career agency system to coincide with a Fiduciary Environment. The incentives to push the career agency's products over others would be a clear cut conflict of interest. Most ERISA attoryneys consider lump sum commissions a conflict of interest... there is no way that the bonuses, benefits (401k/pension/insurance/etc) that are paid to career agents to sell the company products would not be a HUGE conflict of interest.

So I say again. You have no clue what you are talking about when it comes to this issue. Especially if you think that no conflict of interest exists within a career agency.

 

[DHK]

This is an extension of the CFP designation for use in career agencies. About 6-7 years ago, career agencies stopped supporting and reimbursing CFP courses because of the imposed (or implied) fiduciary duty and standard on those CFPs.

So, captive career companies no longer reimburse for CFP studies, but they will for CLU and ChFC - because there is no more "conflict of interest" of doing business as a career agent.

 

[nylife11023]

I'm a 'weekend' poster here. No time during the week to indulge. I will investigate this with senior people in my area whom I know to be experts in order to learn more on the issue.

Thank you.

I exit with this... a song that is before my time that some of you might recognize:

"In Birmingham they love the Gov'nor
Now we all did what we could do
Now [Fiduciary] does not bother me
Does your conscience bother you?
Tell the truth"

Lynyrd Skynyrd, Sweet Home Alabama, 1974

 

[DHK]

My conscience doesn't bother me.

The short-term, selective memories of clients... THAT does bother me.

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You don't know WHICH client it will be that finally sues and complains about you... but always be on guard for it.