How the DOLs FiduciaryCare Will Permanently Change Annuities

Meet Your New Financial Advisor's Advisor at the Department of Labor
Meet Your New Financial Advisor's Advisor at the Department of Labor. Photo by: Paul Harizan / DigitalVision / Getty Images

Everyone on the financial industry is talking about the recent Department of Labor’s ruling on revamping and overseeing financial advice.  Under the guise of “protecting the consumer” our beloved government has now taken over another sector of the economy.  The health care industry is now “Obamacare.”  The financial industry can now be referred to as “FiduciaryCare".

What is “FiduciaryCare”?

The whole Department of Labor power grab revolves around the word “fiduciary.”  The definition of the word fiduciary is:  “An individual in whom another has placed the utmost trust and confidence to manage and protect property or money.

  The relationship wherein one person has an obligation to act for another’s benefit.” 

All that means is an advisor should place the best interest of the client first, and have no personal agenda with any financial recommendation.  That sounds like common sense to most rational people out there, and this should be a no-brainer for any advisor that has chosen the financial advice career.

At first glance and without knowing the details, “FiduciaryCare” seems like a good thing for all parties involved.  Before you start high-fiving yourself, let me remind you that the government is now involved which means it will be a chaotic mess.  That’s an understatement in my opinion.

401k Whiners Brought on "FiduciaryCare" from the Department of Labor.

The primary reason that the Department of Labor started looking into the financial industry is because 401k providers and administrators were furious with money being transferred out of the 401k plan to brokerage firms and annuity companies.

The argument was that they (the 401k providers) had to work under fiduciary rules while annuity agents and other advisors did not.  Valid argument, but not valid enough to upend an entire industry in my opinion.

As Bill Clinton would say, “I feel your pain.”  However, I warn these 401k complainers to be careful what you wish for.

  If they think “FiduciaryCare” isn’t going to disrupt their perfect world, then I have some beachfront property in Wyoming to sell them.

The bottom line is that the 401k whiners think that they have stuck it to the annuity agents and stock brokers/advisors with this new law.  What they are going to find out at the end of the day is that the Department of Labor’s “FiduciaryCare” will hurt their business model as well.

The Annuity Industry caused "FiduciaryCare" to appear. It's a “self-inflicted wound”

I consider myself “the walking middle finger of annuity truth” and “the grim reaper of annuity facts”, so am not afraid to say I place a ton of blame on the annuity industry for “FiduciaryCare” becoming law.  We are all too familiar with the too-good-to-be-true annuity ads on TV and radio that are currently running.  It’s a fraudulent free for all when it comes to annuity marketing and the ongoing over hyped sales message.  Have you ever been to a “bad chicken dinner” annuity seminar?  If so, you know how bad the annuity industry has gotten. There is always a perfect annuity with astronomical interest rates being pushed, as though annuities are one size fits all. More like annuities with high ongoing fees are pushed as the next best financial product that everyone should have in their portfolio.

Nevermind that annuities should be always be looked at through the lens of your own specific parameters.

The Annuity Industry had the Opportunity to Self- Regulate, but Didn't.

The annuity industry could have stopped this nonsense and enforced the laws that protect consumers and upheld their own marketing rules in place already, but they didn’t.  Instead, they turned their head to these misleading promotions in exchange for profits.  Most of the advertising blame can be placed on the shoulders of the indexed annuity companies and their agent army of promoters.  “Market upside with no downside”, “7% yield”, “Free money upfront bonus”, and all of the other sales pitch nonsense has gone pretty much unchecked to the detriment of the entire annuity industry.  This is a fact, and the fiduciary chickens are now coming home to roost.

As we all know, for every action there is a reaction.  When it comes to the annuity industry, for every inaction there is an action.  The new “FiduciaryCare” law is the result of that inaction.

The Consumer Loses When the Government Takes Over

When the current administration implemented The Affordable Care Act (i.e. “ObamaCare”), that government takeover was done under the premise that we need to take care of the uninsured.  Heartstrings were pulled, and we all agree that those 30 million (estimated) people needed to have coverage.  The question is, why didn’t we just take care of those 30 million?!  Instead, we upended and destroyed the system, and are now finding out that “ObamaCare” is failing under its own Utopian weight.The same exact thing happened with the Department of Labor’s “FiduciaryCare.”  Under the guise of “protecting the consumer”, another industry will be absorbed by our all-powerful government.  No one in their right mind would argue against protecting the consumer, and the Department of Labor used this emotional plea to completely disrupt an industry that really was not broken. 

The Financial Industry is Not Perfect.  No Industry is. 

Every sector has bad people and sociopaths that potentially give the vast majority of good people a bad name. There needs to be better oversight and enforcement of the current laws in place.  That’s what should have happened, but it’s now too late in my opinion.The bottom line is that the consumer is actually going to lose when “FiduciaryCare” is fully implemented. 

Under the banner of protecting the consumer, there will be fewer advisors, fewer product choices, and at the end of the day…..higher fees. 

Yes, higher fees!  In addition, you will now have a heavy handed government determining the best products for an advisor to recommend.  Let me say that in another way.  A government official who has most likely never been in the financial advice business will be telling financial advisors what to do.  It’s going to be an outright mess, to say the least, and the consumers that “FiduciaryCare” was intended to help will actually be hurt by the system in the end.

For all of you doubters out there or people that think this “FiduciaryCare” law will work out well, I ask one question.  How’s that “ObamaCare” working out for you?  Fewer choices.  Higher premiums. I don't think that is what was expected.

Any time the government takes over a private sector industry, it never works out well or as promised.

As Albert Einstein once said, “Insanity is doing the same thing over and over again and expecting different results."   “FiduciaryCare” will prove Einstein right again.

"FiduciaryCare" is a Good Idea Gone Bad

The sad part about “FiduciaryCare” is that it is always a good idea to put the consumer first, regardless of the industry.  When this proposed law first arrived in Washington, DC, intentions were good and the thought was promising.  Unfortunately like anything good that arrives in Washington, by the time it comes out of the political “sausage grinder”, things never emerge as they were initially intended.  “FiduciaryCare” is a prime example of the political nonsense that ends up ruining most DC good intentions.

The Fight is NOT Over! Insurance Lobbyists Will Surely Contest the Implementation of "FiduciaryCare".

As long as lawyers inhabit the planet, there’s always a lawsuit around the corner and fees to be charged.  Because the insurance lobby has pretty much unlimited funds, it’s predictable that annuity carriers will file lawsuits against this proposed “FiduciaryCare” law to try and stop it from being implemented.  Good luck!  In my opinion, the only winners will be the lawyers collecting their exorbitant fees.The primary funding of these lawsuits will be from carriers that sell indexed annuities.  By the way, indexed annuities are the most over hyped, over sold, over promised, unregulated products in financial history.  It’s also one of the most profitable products for the carrier and a product with one of the highest agent commission on the planet.  Once again, I say good luck with that argument and lawsuit.

The annuity industry had its chance to self-regulate, and actually prevent “FiduciaryCare” in my opinion.

Because of the apathy, this legal “hail Mary” last ditch attempt to save their golden goose will most likely fail.  Congratulations to all of the lawyers who will be employed in this fruitless fight.  You will be the only winners, which seems to always be the case.

Be Careful Until “FiduciaryCare” is Law

Like any proposed law, there is a time period from the introduction to actual implementation.  At the time of this article, “FiduciaryCare” is over a year away from full implementation.  All I have to say to the consumer when it comes to shopping for an annuity during this time period is BUYER BEWARE!  Annuity companies are in the process of putting in procedures to comply with the new law, and will not be paying much attention to the “annuity gunslingers”. They will be saying whatever it takes to sell you their high commission annuity.  In other words, there will be thousands of annuity agents selling like they have terminal cancer, and like there is no tomorrow.  Stay safe out there, “FiduciaryCare” is on the way - whatever that will eventually mean.