During 2020, the Department of Labor (DOL) issued a new interpretation of the five-part test that is used to determine if sales agents are ERISA fiduciaries, known as “Investment Advice Fiduciaries.” Despite industry objection, the DOL decided to finalize this new interpretation of the five-part test, as well as a new prohibited transaction exemption, and have it become “final” as of Feb. 16, 2021.
This new interpretation of the five-part test makes it likely that sales agents are acting in a fiduciary capacity when selling qualified annuities (IRAs). Agents who are fiduciaries in a sales transaction cannot be compensated on that sale without first complying with a prohibited transaction exemption (PTE). The new PTE (PTE 2020-02) requires:
- that the agent acknowledges, in writing, that he/she is a fiduciary to the customer and
- an insurance company perform an annual comprehensive review of agent compensation, conflicts of interest, and sales practices
AEL does not intend to use this new exemption at this time. Instead, PTE 84-24, which requires a simple compensation and product disclosure and is applicable to insurance and annuities, may be utilized.
The new guidance and exemption includes an extension of the DOL’s non-enforcement policy to year-end of 2021. Under this non-enforcement policy, in order to avoid enforcement action and penalties from the DOL, agents must act consistently with an “Impartial Conduct Standard” defined by the DOL. This standard requires agents to:
- make a good faith determination of whether they are a fiduciary, and, if so,
- to act in the “best interest” of the customer
AEL believes that “doing nothing” in response to the expanded five-part test is not an option if agents want to claim the benefit of the non-enforcement policy. AEL intends to assist our independent agents and IMOs in remaining independent and complying with DOL standards by:
- Providing training on the new interpretation of the five-part test
- Providing documentation agents can use to determine if they are likely to be a fiduciary in a particular sales transaction
- Providing pre-populated disclosures for each AEL product that meet the requirements of exemption 84-24; and
- Providing training on PTE 84-24 and how to utilize it
Look for this information in the near future. AEL is happy to provide education and training to our distribution firms and agents. However, we cannot provide legal advice. If you need additional guidance, please consult your agency or personal counsel.
If you have any questions, contact the compliance department at 1-888-221-1234 or email@example.com.
1 (800) 772-6881 x7731 | firstname.lastname@example.org