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IMOs Prep Themselves for the DOL Rule

By Warren S. Hersch June 9, 2017

While industry manufacturers prepare for the long-awaited June 9 phase-in of DOL’s Conflict Interest Rule, key distribution players on which the brunt of the rule’s requirements will fall — independent marketing organizations — are themselves scrambling to become DOL ready. The efforts range from the overhauling of information technology systems to offering advisors DOL-compliant training and education.

For now, IMOs and other insurance intermediaries (including broker-dealers and registered investment advisors) have some breathing room to comply with the fiduciary rule. While affiliated advisors will be begin operating as fiduciaries on June 9, full compliance with the rule — including imposition of market conduct standards under the best interest contract exemption (BICE) — won’t kick in until January 1, 2018.

Until then, sellers of fixed indexed annuities can continue to operate under prohibited transaction exemption (PTE) 84-24. As with the BICE, PTE 84-24 lets producers continue to receive “reasonable” commissions for qualified plan retirement advice that would otherwise be barred as a “conflict of interest” under the rule. Disclosure and fiduciary requirements are also similar, but producers need not ink a formal contract with a client; nor need they have a DOL-approved financial institution sign off on a product sale.

Thus, they can continue to do business through the end of the year with independent marketing organizations not yet approved as financial institutions. With an eye on the January 1 deadline, the more proactive IMOs are taking steps to be FI-ready — or affiliate with those that need a helping hand compliance-wise.

Case in point: Clarity 2 Prosperity, a training company that operates a registered investment advisory firm (Prosperity Capital Advisors); and an IMO (C2P Advisory Group). The company is providing wholesaling and training services to other IMOs seeking to become financial institutions under the rule, offerings in greatest demand among small IMOs with limited resources.

“Many of the big IMOs have the policies and procedures needed to supervise advisors and will be ready for the DOL rule come [June 9],” says Dave Alison, Clarity 2’s executive VP and founding partner. “But small to midsize firms don’t have the requisite infrastructure, training or knowledge to continue to distribute in the FIA space.”

Also helping IMOs and their advisors prepare for the DOL rule are the insurers — an effort that has accelerated in recent weeks. But industry-watchers note that some carriers are doing a better job than others.

Ryan Brown, CSO and corporate counsel of M&O Marketing Group, flags several insurers and product development companies for being especially proactive in delivering fiduciary-compliant training, best practices and guidance. Among them: Allianz Life, American Equity, Athene, Global Atlantic and Market Synergy Group.

“These companies — all of which have a significant presence in the fixed indexed annuity market — have done a great job conveying how they intend to comply with the rule. Their training, resources and support have been top-notch.”

He commends other carriers, too, for their stepped-up efforts in recent weeks to help wholesalers and their advisors. Nationwide Retirement Institute debuted this week a “DOL website” that provides an FAQ about the DOL rule’s transition period, plus information making “prudent recommendations.”

Lincoln Financial, for its part, has created a dedicated “partner communications mailbox” to serve as a one-stop resource for communications between Lincoln and its distribution partners; conducted periodic conference calls since November of 2016 to update them on DOL developments; set up a forum to share current business, legal and operational updates; and hosted Q&A sessions to allow for partners to ask questions about the rule.

“We are proud to work with all of our distribution partners to ensure that they have the solutions they need and are ready to sell on day one as the DOL rule takes effect,” says John Kennedy, head of retirement solutions at Lincoln. “Our product suite is DOL ready, and we’re pleased to be able to offer a broad spectrum of both fee and commission compensation alternatives for our distribution partners.”

A big component of the IMOs’ prep work entails software upgrades to allow for advisors to conduct fact-finding and develop product recommendations consistent with the DOL rule, as well as provide for necessary disclosures, reporting and other requirements.

To that end, says Brown, M&O Marketing is now vetting several software packages the company plans to make available to its field force. Clarity 2 is also building proprietary financial planning software for partnering IMOs and independent advisors. A “hard launch” (commercial release of the product) is planned for the end of June.

“The software takes the best interest contract planning process and brings it online with approved product shelves,” says Alison of Clarity 2 Prosperity. “It does all of the documentation necessary to ensure every ‘i’ is dotted and every ‘t” crossed in the building of a financial plan.”

In tandem with the software roll-out, Clarity 2 has spearheaded other initiatives to help advisors get up-to-speed. These include the development of a two-hour e-learning course, live training spanning a day and a half, plus an hour-long certification exam.

Also spearheading a revamp of business processes is AmeriLife Group, a Florida-based IMO that is investing in both technology and staffing. The company boasts a risk assessment tool, AmeriLyzer, that helps agents document how to act in clients’ bests interest under PTE 84-24; and, beginning on January 1, under the BIC exemption.

AmeriLife currently has close to 1,000 career agents enrolled on the AmeriLyzer platform, says Janet Sipes, senior VP of programming management. In addition to its subsidiary marketing firms, she adds, the tool is being offered to affiliated IMOs and other distributors. (Since 2016, the company has also operated an RIA, AmeriLife Financial Advisors).

To address a key concern of brokers — the heightened prospect of litigation by the class action bar — AmeriLife also is providing errors-and-omissions (E&O) insurance to cover potential claims under the rule.

“Some E&O coverage excludes fiduciary claims and wouldn’t defend or cover an agent or advisor if such a claim is made,” says Patrick Nichols, a senior VP and chief compliance officer at the company. “AmeriLife and its subsidiaries provide E&O coverage today that encompasses fiduciary responsibilities under the DOL Fiduciary Rule.”

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