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DOL--government to the rescue

Allen Trent

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Looks like it is official. New rules effective September of this year from the DOL. I have not seen all the nitty gritty, but article says those most impacted will be insurance agents (annuity) when it involve rollovers from employer plans, etc.

Not sure if it now requires new & updated CE like previous Suitability & Best interest versions. Also, not sure if compliance departments will have to modify the existing questions on application regarding assets, etc.

Stay tuned, I am sure more to follow.





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It does not seem to prohibit qualified annuities by a unregistered insurance agent. But Im guessing we will see further comp reductions from this rule, just like back in 2016. And say goodbye to any products over a 10y surrender (good thing imo).
 
It does not seem to prohibit qualified annuities by a unregistered insurance agent. But Im guessing we will see further comp reductions from this rule, just like back in 2016. And say goodbye to any products over a 10y surrender (good thing imo).

If I recall when DOL rule was in play temporarily, there was also some items related to contests/bonus & also some items related to using RMD or distributions from IRA/retirement accounts to pay life insurance premiums.

Lastly, if acting as a fiduciary, how can a rep for an annuity or any IRA say that moving a 401k to an IRA is better than leaving in 401k or moving to new employer 401k. 401k generally have greater creditor protection than IRA. 401k of new employer has loan access, IRAs don't. 401k has some potential for access at 55 without 10% IRS penalty, IRA is 59 1/2. Most 401k plans have much lower cost/fees than a comparable IRA. 401k doesn't have surrender charge schedules like annuity or some mutual fund share classes. Index Annuity & RILA might have a case for someone that wants downside protection as most 401k don't offer anything similar other than fixed account without upside possibility.
 
If I recall when DOL rule was in play temporarily, there was also some items related to contests/bonus & also some items related to using RMD or distributions from IRA/retirement accounts to pay life insurance premiums.

Lastly, if acting as a fiduciary, how can a rep for an annuity or any IRA say that moving a 401k to an IRA is better than leaving in 401k or moving to new employer 401k. 401k generally have greater creditor protection than IRA. 401k of new employer has loan access, IRAs don't. 401k has some potential for access at 55 without 10% IRS penalty, IRA is 59 1/2. Most 401k plans have much lower cost/fees than a comparable IRA. 401k doesn't have surrender charge schedules like annuity or some mutual fund share classes. Index Annuity & RILA might have a case for someone that wants downside protection as most 401k don't offer anything similar other than fixed account without upside possibility.

Excellent points. You sound like a Qualified Plan lobbyist! lol.

I do agree with many of your points.

In a perfect world. Many would be best served under that model.

However, many 401k plans are not prudently managed.

There is also the issue of advice.

401k participants normally do not receive financial advice specific to their individual situation. Some plans provide 3(38) services that do provide advice.... for an extra fee. But most do not. And utilization of 3(38) services is not very high statistically speaking.

If all 401k plans were 10m+ in assets and prudently managed and offered 3(38) services at a reasonable cost. Yes. Your argument has a lot of validity to it.

But that is not the real world we live in.

If they want to crack down on Fiduciary prudence in IRA sales.

They need to crack down on Fiduciary prudence at the Plan Sponsor/Advisor level in Qualified Plans.


Example:
I'm currently trying to talk a college out of implementing an American Funds 401k plan with entirely all proprietary funds.

Its a start up. All in cost was around 180bps for an actively managed fund.

An advisor could match those funds in an IRA and provide an all in cost of 100bps. Or a sales commission of 5% with very little cost after.

Laws could be changed to strengthen IRA creditor protections. And to require loans to be made available. (some annuities allow for loans too btw)

And as you pointed out, we are ignoring risk tolerance. Investment preference. Goals. Needs.

Many financial experts and institutions have shown the value of a guaranteed income stream in retirement. Nothing does that better than an annuity.

And liquidity is an overhyped benefit when dealing with qualified money.
How many people actually liquidate $500k in a year and take that tax hit??

Then diversification can become an issue within a 401k for high account values who want diversity outside of the standard benchmarks.

A prudent Fiduciary should be licensed and knowledgeable in all possible options a client has available to them. And clients deserve the most options possible.
 
I'm currently trying to talk a college out of implementing an American Funds 401k plan with entirely all proprietary funds.

Its a start up. All in cost was around 180bps for an actively managed fund.

A ton of lawsuits are happening on 401k plans on fees lately(200 class action lawsuits in a 3 yr period) Even on some of the plans with a variety of low cost offerings because there might be one with slightly lower, so employers are having to get RFP from several competitors to then analyze costs & offerings & those are not cheap to conduct.

 
A ton of lawsuits are happening on 401k plans on fees lately(200 class action lawsuits in a 3 yr period) Even on some of the plans with a variety of low cost offerings because there might be one with slightly lower, so employers are having to get RFP from several competitors to then analyze costs & offerings & those are not cheap to conduct.


Yes. That is mostly happening with very large plans though.

It will filter down and force changes to smaller plans.

But that still does not fix the advice aspect of it all.

Participants receive zero advice, unless they are offered and pay extra for a 3(38) advisory service.

Very few consumers are willing to pay a few grand out of pocket for financial advice. Most would rather pay 50bps deducted from their assets.

Recently, the "monthly subscription" model has gained interest.
Basically just financing the lump sum cost of advice.
 
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