100 Century Parkway, Suite 240, Mt. Laurel, NJ 08054
Phone: 800-524-1774
Fax: 856-727-0600
Email: info@callums.com
When does it apply to MY BUSINESS?
Answer these questions.
Where is the money coming from?
Where is the money going?
The rule applies for advice to move money into qualified accounts regardless of whether the source of the funds is a non-qualified or qualified account.
Sources could include: Fixed Index Annuities (FIAs), variable annuities (VAs), Fixed Annuities (FAs), life insurance, mutual funds, checking accounts, etc.
The Rule also applies for advice to move money from a qualified account into a non-qualified account. This includes a non-qualified life insurance policy being funded from a qualified account.
The rule does not apply for advice to move money into a non-qualified account from a non-qualified account.
Once you have determined that the funds you are working with may be subject to the rule, you should evaluate whether or not you meet the 5-part test.
How can I comply with the DOL Rule?
If the new rule applies, and you pass the 5-part test, you are prohibited from receiving compensation unless you act in accordance with the DOL fiduciary standards AND comply with an available PTE, PTE 84-24 is available to you as an independent insurance agent, and there is specific training on the exemption to help you understand your responsibilities and how to comply with the rule. Contact the Annuity Team for details on the training.
What is the
5-Part Test?
The advice you give on qualified funds/rollovers is considered to "pass" the 5-part test and be subject to a fiduciary standard if it meets ALL of the following criteria:
1. You render advice to to the plan as to the value of securities or other property, or make recommendations as to the advisability of investing in, purchasing, or selling securities or other property;
2. This advice is rendered on a regular basis;
3. The advice is pursuant to a mutual agreement, arrangement, or understanding with the plan, plan fiduciary, or IRA owner; that
4. The advice will serve as a primary basis for investment decisions with respect to plan or IRA assets, and that
5. The advice will be individualized based on the particular needs of the plan or IRA
If the DOL rule applies to the transaction and advice meets all of the above criteria, it passes the 5-part-test. This means the advice is subject to a fiduciary standard AND you must comply with an available PTE.
I'm an insurance-only financial professional not registered with FINRA; How do I comply with the DOL Rule?
PTE 84-24 is available to you as an insurance-only financial professional. Under PTE 84-24, it is up to the financial professional to effect a transaction in the ordinary course of business, provide the client with any required disclosures, and accept only reasonable compensation. There is non-required training on PTE 84-24 available. Ask someone on the Annuity Team at UMS for details or a link to training.
Previously, the advice I gave
did not pass the 5-Part Test;
Does this mean the rule doesn't apply to me?
No. The DOL has revised their interpretation of the 5-part test in their latest rule-making documents. The DOL has now stated that a recommendation to take a distribution from a qualified plan or rollover into an IRA is now more likely to be considered fiduciary investment advice than in the prior interpretation (meaning the transaction would most likely "pass" the 5-part test and be considered fiduciary investment advice under the rule).
What is
PTE 84-24?
PTE 84-24 is known as Prohibited Transaction Exemption 84-24. It is one of the exemptions available to independent agents, and if complied with allows them to receive compensation on qualified fixed index annuities. Under PTE 84-24, it is up to the financial professional to:
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Act according to a fiduciary standard on certain qualified transactions
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Effect a transaction in the ordinary course of business
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Accept only reasonable compensation
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Provide the client with the required disclosure
The New DOL Rule is titled: Improving Investment Advice for Workers and Retirees.
This information is being provided only as a general source of information and is not intended to be the primary basis for any decisions. It should not be construed as advice. Please seek the guidance of an attorney regarding your particular situation.
What does the DOL rule do?
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Restores 5-part test defining WHO is a fiduciary
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Restores the 2006 version of PTE 84-24 (Prohibited Transaction Exemption)
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Creates a new PTE which requires a Financial Institution and compliance with "Impartial Conduct Standards"
What does this mean for you?
If the DOL rule applies to a transaction (i.e. - qualified funds/rollover) and you pass the 5-part test, you will not be able to receive compensation on the sale of qualified fixed index annuities or when funds from a qualified plan or IRA are used to purchase a non-qualified annuity, without complying with a PTE.
What are the Disclosure Requirements needed to comply with PTE 84-24?
Prior to the execution of a transaction, you must provide a disclosure to the client that covers the following:
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The nature of any affiliation or relationship you have with the insurance company and to what extent the insurance company limits your ability to recommend the insurance or annuity contract;
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Sales commission, expressed as a percentage of gross annual premium payments for the first year and renewal years, payable to you in connection with the sale;
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Charges, fees, penalties, or adjustments imposed under the contract in connection with the purchase.
The client should sign this disclosure to acknowledge receipt of the disclosures and to approve the transaction.
There is a template created that is available for you to use as a starting point in developing your own PTE 84-24 disclosure template for your practice. You can also use your own, another industry template or consult an attorney to develop one.
DO NOT submit this with a policy you write. You should keep this document in the client file for 6 years as required by the PTE (Prohibited Transaction Exemption).
I am already required to complete the Best Interest Form from the NAIC;
Do I still need to comply with the DOL Rule?
You must meet both requirements. Although the information required is similar for both the NAIC form and PTE 84-24 disclosure, there are differences including when the disclosures are required.
The NAIC disclosure requirement may be included in applications for states that have adopted the model. Check with UMS if you have questions.
The PTE 84-24 disclosure form will not be included in all application packets and should not be sent in with a policy, they are to be retained with the client's files.
What is the other PTE Available?
There is a form PTE 2020-02 that permits financial professionals to receive compensation beyond Commissions which would otherwise be prohibited because its receipt creates conflict of interest. These types of compensation can include commissions, 12b-1 fees and revenue sharing paid in connection with the sale of Fixed Index Annuities and Variable Annuities, to the extent the conditions of the 5-part test are met with respect to such compensation. In order to rely on PTE 2020-02, financial institutions and their investment professionals must generally comply with certain requirements. Contact the Annuity Dept at UMS for more information.