My Brother’s Keeper: Annuities Face Stricter Customer Care Rules

Among the many, many, many aftershocks of the new fiduciary rules is the application of the new Best Interest Contract Exemption to fixed indexed annuities. The Department of Labor produces millions of pages of rulings and rules, but only just determined that fixed indexed annuities were complicated.

According to the Retirement Income Journal:

The DOL likened FIAs to variable annuities in their cost and complexity. “Given the risks and complexities of these investments, the Department has determined that indexed annuities are appropriately subject to the same protective conditions of the Best Interest Contract Exemption that apply to variable annuities,” the final BICE text said. FIAs have gotten even more complex in recent years, especially with the introduction of hard-to-value “hybrid” indices that allow issuers to offer supposedly “uncapped” gains even though the gains of FIAs are by design strictly limited. But it’s not clear if this trend influenced the DOL.… The DOL said that it put FIAs under BICE because they’re so complicated and hard to understand. “Retirement Investors are acutely dependent on sound advice that is untainted by the conflicts of interest posed by Advisers’ incentives to secure the annuity purchase, which can be quite substantial.

It may be a case that one man’s level playing field is another man’s valley of death. Says Retirement Income Journal:

In addition, the DOL said that it wanted to create a “level playing field” for FIAs and VAs, and to avoid “a regulatory incentive to preferentially recommend indexed annuities,” as the original proposal could have created. But, arguably, the DOL has chosen to provide a disincentive to recommend VAs and FIAs, and gives an implied encouragement to the sale of fixed deferred and fixed income annuities, including single premium immediate annuities, deferred income annuities, and qualified longevity annuity contracts.