What impact have Advisors experienced since the transition period started for the DOL Fiduciary Rule? What we know today is that insurance companies and brokerage firms have already implemented changes because of the DOL Fiduciary Rule. These changes affect how an Advisor approaches a client, how an Advisor is compensated, and how an Advisor records the repeatable process.

Overview of the DOL Fiduciary Rule as of Today

In simple terms, Department or Labor (DOL) Fiduciary Rule expands fiduciaries to advisors who offer advice and recommendations on retirement plans and IRAs for a fee or other compensation. In some instances, investment clients may be advised to shift their retirement savings from one fund to another, or rollover investments between a 401(k), IRA, Roth IRA, or another investment vehicle. An advisor “fiduciary” may have to justify their recommendations by showing the investment strategy is in the best interest of their client especially if the recommendation results in a higher fee or cost structure. The other side of the DOL Fiduciary Rule is the advisor’s compensation. Reasonable compensation is permitted, however a Best of Interest Compensation Exemption (BICE) is established to help the advisor avoid litigation down the road as it pertains to the recommendations to their client. This will result in the client and advisor signing a Best of Interest Contract (BIC).

On June 9, 2017, the transition period for the new Department of Labor fiduciary rules began. “The reality is as a plan advisor, if you have a conflict related to either proprietary product, forms of compensation, or limitations of access to products that you offer your clients, you need to be affirmatively disclosing those conflicts to your client now,” said Andrew Besheer, a project leader for Broadridge’s DOL Fiduciary Rule Solutions program, during a webinar hosted by the firm (source BenefitsPro). The full implementation of the DOL Fiduciary Rule must be completed by January 1, 2018. The Department of Labor is accepting feedback during the rest of 2017 from Advisors, Broker Dealers, Fund Firms and other participants in the qualified plan recommendation process. This could result in relaxing or tweaking some of the enforcement mechanisms and compensation rules. Fundamentally implementation of the rule as interpreted today is already in progress.

New Approach with Clients

Advisors must be more transparent on product fees and compensation. Will the client have more trust and confidence with his/her Advisor? Being more transparent may strengthen a new relationship between the Advisor and his/her client, however a client who has a long history with their financial advisor already assumes their Advisor is looking out for the client’s best interest and acting as fiduciary.

If you sell proprietary products, you don’t have to mention competitor products even if they have lower fees. Higher fee products like a Variable Annuity for an IRA can still be recommended to a client if you can demonstrate it is in their best interest. If you work for a big wire house for example, you may be required to push smaller accounts out because of costs to comply with the new rule. The client may then gravitate to a robo-advisor. There will be additional paperwork that will involve your client. In the case where you are required to do a Best of Interest Contract, you must explain the BIC to your client and get a signature. As a broker who is now acting as a fiduciary working with a 401(k) plan, you may approach your investment options differently to the plan sponsor (employer) focused on Best Interest not just suitability.

Not everything will change when engaging with clients because there are things not covered in the DOL Fiduciary rule. It’s not considered financial advice if a client calls a financial advisor and requests a specific product or investment. An Advisor can provide education to clients, such as general investment advice based on a person’s age or income. Taxable transactional accounts or accounts funded with after-tax dollars are not considered retirement plans, even if the funds are personally earmarked for retirement savings.

Compensation Changes

Advisors will see changes in their compensation with the DOL Fiduciary Rule. Some companies will be moving away from commissions and compensation, and moving toward a flat-fee based model. A flat fee might be a subscription or an upfront payment. An asset under management model, in which the client might be charged one percent each year on all investment assets held with the advisor could be implemented by companies and brokerage firms. As mentioned above, the rule states that all fees and commissions must be reasonable. There isn’t a lot of clarity around the term “reasonable compensation”, however the advisor’s compensation will most likely be changing on qualified plans recommended including annuities using qualified money. Fiduciaries will be required to comply with Impartial Conduct Standard. This includes providing advice which is in the best interests of their clients. Advisors must avoid making any misleading statement. As I have already stated several times above, advisors cannot charge more than reasonable compensation for services. As per a NAIFA Survey in April 2017, “The rule is already having an impact on advisors’ compensation. The survey found that 43 percent of advisors have experienced reductions in the commission compensation arrangements, while an additional 49 percent expect reductions. One of NAIFA’s major concerns about the DOL rule is that it would force financial institutions to switch clients from commission-based to fee-based accounts for those clients to remain financially viable. Approximately 77 percent of advisors said that more than half of their retirement planning clients would see increased costs if they had to switch from commission-based to fee-based accounts. Of those advisors, 41 percent said that more than 80 percent of their clients would see increased costs if forced to switch.” (Source – NAIFA.org). Bottom line compensation or other incentives by firms and leading with a specific product that may pay a higher commission will no longer be permitted or be available to Advisors.

New Automated Processes

Even though Advisors must change the way they approach clients, there are new “automated” tools for financial advisors and insurance agents that have been implemented by insurance companies and brokerage firms to streamline the process. In many cases the advisor starts from their Client Relationship Management System (CRM) and then launching into a product recommendation tool like Impact’s® PlanFacts, https://shop.planfacts.com/, which assesses the client’s financial profile and the answers provided by the client in an automated risk questionnaire (a repeatable, and documented process). This assessment is analyzed in a rules engine containing the rules supplied and approved by the compliance department of an insurance company or broker dealer. The product recommendation is included in the PlanFacts financial planning report presented to the client by the advisor. This goes from beyond suitability to best interest of the client, which results in a product type, like a Variable Annuity for example, to be recommended. Locking down the recommendation and keeping a permanent record along with the BIC document is part of the automated process enforcing the “Best Interest of the Client” as defined in the DOL Fiduciary Rule as well as being prepared to make available the evidentiary process and documentation in the future as needed. Once the product type for the best interest of the client has been established, then specific product comparison and quoting could be the next integrated step in the process. Staying with the example of a Variable Annuity recommended, then a seamless integrated pathway to an automated Annuity Order Entry (AOE) Platform such as Ebix’s AnnuityNet, Insurance Technologies’ FireLight or iPipeline’s Affirm for Annuities for submitting the annuity application as the next step in the process. The AOE includes a compliance workflow at the Broker Dealer. The data and forms are then transferred electronically to the insurance carrier by first passing through the Deposit Trust Clearing Corporation’s (DTCC) hub. DTCC transmits the annuity application and initial premium information from the distributor such as a Broker Dealer to the insurance carrier. The DTCC service provides an efficient, straight-through process for validating, formatting and submitting annuity applications and initial premium payments while incorporating same-day money settlement.

Here we are in the transition period of the new DOL Fiduciary Rule; and financial advisors, brokers and insurance agents are already experiencing a lot of change. Some of the changes for Advisors has been significant in the way they approach clients especially because of increased compliance costs. In many cases, Advisor’s compensation has taken a negative hit while there is more work involved in learning new processes. The final chapter of the DOL Fiduciary Rule has not been written yet, however we will learn about changes as we get closer to January 2018 and then adjust our course accordingly.

Posted October 30, 2017 filed under Announcement.

The Bipartisan Budget Act of 2015 makes significant changes to Social Security planning. There are many articles that go into the details of the changes (this article from Michael Kitces for example), but the legislation most affects ‘restricted application’ and ‘file and suspend’ filing.

There are millions of Americans over the age of 62 who have not yet filed for Social Security benefits who can still take advantage of restricted applications. Those who will be age 66 by April 30th can still use file-and-suspend. And, anyone thinking of filing for benefits must consider when to file.

The changes for restricted applications apply to those who attain age 62 in any calendar year after 2015. Your clients who are at least 62 years of age by the end of 2015, will still be able to utilize a restricted application.

‘File and suspend’ however, is another story. The new legislation eliminates the most common application of the ‘file and suspend’ strategy unless your clients can take advantage of it within the next 180 days (the exact date for the expiration of the ‘file and suspend’ strategy is not yet available, but will be after April 30th 2016).

From a Congress that has been stalemated for years, this legislation came out of the blue and passed with unbelievable speed. We know the urgency you have to get proposals in your client’s hands that reflect these changes. Impact plans to have its software modified and deployed on Wednesday November 4th.

Posted November 3, 2015 filed under Announcement, Articles.

Social Security Explorer

Today we received the issue notification for patent number D688687. The patented design of  Social Security Explorer resulted from intensive research by team leads Maxey Sanderson and Gretchen Smith. Their initial design was further refined during our development process and field testing. Social Security Explorer is now the easiest way to explore filing options with your clients. The attractive interactive design gives immediate feedback and makes the process enjoyable. All the complicated logic and the exhaustive calculations are reduced to a display clients actually understand and want to explore.

Currently Social Security Explorer is only available to financial professionals. We’re currently developing products designed to be used by consumers that expand on the patented design with additional interactive educational components to contribute the explanations that a professional would normally provide.

A 5 minute video tour.

Posted August 14, 2013 filed under Announcement, News.

Impact is pleased to announce the latest version (2.1) of Social Security Explorer.  This new release of Explorer adds the ability to illustrate Social Security benefits affected by the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).  In addition, several new print features make the reports even easier to create.

The Social Security Explorer helps answer three important questions:

1.  What will we get?

2.  When should we start collecting?

3.  How do we know if we are getting as much as possible?

Click on this link for more details about the tool that has excited producers all over the country!  Take it for a test drive today.

Posted June 6, 2013 filed under Announcement, News.

Impact and LIMRA are excited to announce a new application, Ready-2-Retire, for the Retirement Income planning market.  LIMRA provided the research and content for Ready-2-Retire and Impact provided the creative user interface design, development and technical programming.

This interactive tool provides a new way to look at preparing for retirement.  LIMRA research studies show that pre-retirees do not give sufficient thought to decisions affecting their future.  Questions about when, where and how to retire, require serious consideration.  Pre-retirees often underestimate the challenges and risks that threaten their future quality of life.  The Ready-2-Retire application offers consumers a “Vehicle for Self-Discovery”.  It helps them visualize dreams about their next phase of life.

Ready-2-Retire will engage, educate and prepare the next generation of retirees to take action.  It is an excellent lead-generation platform for companies and advisors.

Ready-2-Retire works with web browsers and is iPad ready.

Impact and LIMRA are marketing Ready-2-Retire to both corporate clients and to individual producers. Producers can sign up for Ready-2-Retire by clicking on this link: Order now!

Corporate clients who would like to see how Ready-2-Retire can help your business prosper in the Retirement Income space, should contact Shelley Walsh.  Shelley can be reached by phone at (704) 927-3222 or by email at shelley.walsh@impact-tech.com.

Posted June 1, 2011 filed under Announcement, News.

Impact is pleased to announce the release of the 2010 Tax Act calculation update to both its retail and corporate clients.  This update adds to the software, the new estate and gift tax calculations for years 2011 and 2012.  These changes include:

  • A Basic Exclusion Amount of $5,000,000
  • Portability of the Exclusion Amount from one spouse to the surviving spouse
  • Unification of the Estate, Gift, and Generation Skipping Transfer Taxes

For death or gifts in 2013 or later, there will be no changes other than to reflect a death or gift in 2011 or 2012.  Similar to the current calculations, Impact tools will continue to reflect the reversion to 2001 provisions as the law now specifies.

The Impact release scheduled for the Spring of 2011 will add new comparison pages which demonstrate possible assumptions about estate taxes for 2013 and beyond plus presentation pages to help users further explain planning opportunities created by the new law.

Posted February 4, 2011 filed under Announcement, News.

Modeling the effect of the new estate tax law can be confusing and a little challenging.  While our comprehensive  calculations are being updated,  you can immediatly use Impact’s new online tax calculator.   This calculator offers a quick look at what the changes in the law might mean for your clients.   Just click here to launch the application.

Impact has been providing industry acclaimed estate tax modeling tools to advisors since 1981.  These tools are currently being used by thousands of estate planning professionals all over the country.  For more information on our Estate Tax Analysis program just click on this link to our online store.  http://new.impact-tech.com/products/estate-tax-analysis/

Posted December 27, 2010 filed under Announcement, News.