This post is part of a series sponsored by AgentSync.
The insurance industry thrives by rewarding best-selling agents, but the Department of Labor (DOL’s) fiduciary rule states that traditional annuity-related sales incentives present a compliance challenge for carriers and producers who work with qualified pension funds.
With the Department of Labor’s trust rule coming into full effect this year, we thought it was worth taking a look at the duty carriers that carriers should look at as they arrange their homes.
As a reminder, while this is intended to spark ideas and discussions about your obligations, we are not attorneys or compliance officials. You’re required to do your own due diligence, period.
Insurance Industry Sales Rewards
prisoner? does not depend on? life and health? Property and accidents? It doesn’t matter where you are in the industry, odds are, if you sell insurance, you’ve historically had some kind of incentive structure beyond commission.
- Motivational trips and cruises to sell products
- Commission bonuses linked to production
- Marketing credits or free business associated with production
These loyalty bonuses and sales incentives are an area of scrutiny for producers who may sell annuities or permanent life insurance policies that are ultimately funded through retirement plans.
Who has duties?
Ultimately, the Department of Labor asserts that carriers have a responsibility to oversee product activity and compliance. However, before agencies explicitly shirk responsibility and go past sunset, it’s worth keeping in mind:
- The NAIC model covering best interest practices still holds agencies (also known as commercial entities) responsible for following the same practices as producers
- There is a growing tide of countries adopting the NAIC model
- State law supersedes and supplements these federal regulations – it is both/not either/or
Also remember that small agencies and brokers like IMOs/FMOs/NMOs/General Agencies/Broking Aggregators are in no small part to serve their affiliate producers, which may mean handling administrative duties such as paperwork and documentation. So, helping producers maintain compliance may still be a key obligation of your agency.
Duties of the carrier under the Ministry of Labor fiduciary law
Regardless of the agencies’ supporting roles and services, the Department of Labor places specific oversight duties directly on insurance companies as they are regulated as financial institutions. here they are:
It should be noted that Department of Labor guidelines place these three duties of overseeing somewhat on a tripartite equilibrium. If you do not do much to mitigate improper temptations in potentially problematic areas, it is best to tighten your compensation and be prepared to document and provide serious oversight over the sales of each product. If you mitigate areas of extreme concern and tighten up compensation and supervision controls, producers’ operations documentation doesn’t need to be strict.
Duties of the insurance company to mitigate under the Ministry of Labor credit standard
Under the Department of Labor fiduciary law, companies with these supervisory responsibilities have a duty to mitigate conflict-causing factors.
Practically speaking, what would that look like? Here are some examples of ways companies can mitigate conflicts of interest:
How does the Department of Labor affect product and situation disputes
regulators by state, Misrepresentation of annuity sales (especially fixed index and variable annuities) is a constant problem. As a moving company, you probably know this annuity Childbirth – exchanging one yearly salary for another It is problematic, so you can set up strict guidelines when appropriate, and carefully sift out those specific situations. Or, if 401(k)-to-IRA overlaps are one of those situations where you find that producers are likely to incorrectly provide an annuity, then you can set very strict situational guidelines about what the producer can do or advise regarding funds Overnight.
How does the DOL rule affect motivational trips, cruises, and sales measurement events
Frankly, exclusive incentive flights for one product or type of product have been a struggle for dually licensed producers/advisors who have held insurance and stock licenses for some time. Department of Labor guidelines are clear; It does not prevent carriers from rewarding and recruiting selling agents. He says carriers should stop paying any product quotas and incentives.
How does the DOL rule affect predefined lists
Pre-defined lists with guidelines for appropriate audiences and sales can be a great way for carriers to help potential customers take the stress out of making a decision to find products that best fit their needs. It’s done poorly, although predefined product listings can also be a way to push your most profitable products exclusively in a way that minimizes specific consumer needs. Dilution in this area means setting fair standards for what makes the list, perhaps having a few different lists for different goals and life stage criteria.
Insurance companies compensation structures under the Ministry of Labor rule
The Department of Labor law has a lot to say about the carrier’s duty to end compensation structures that pay in favor of certain products over other products. If a carrier can offer commission incentives consistently, ensuring that there is no higher incentive for annual salaries and other fixed or variable contracts than other fair products, carriers will not have to provide the same amount of oversight to ensure that producers treat consumers fairly. Eliminate huge incentives, and you’ll make it much easier for the producer to get the best out of the consumer.
How do carriers handle product data documentation and analysis under a credit standard
Perhaps the most worrying requirement is closer oversight of producers.
The fiduciary base of the Department of Labor takes the position that the end products are your responsibility. This has already been a trend in the industry; Think of a wave states like texas And the kansas that have adopted laws to enforce carrier designations for any end product that may sell that carrier’s products.
But this comes with very real difficulties for carriers.
For one thing, producers may have several agencies removed from their carrier. Carriers often work with producers in states where there is no appointment, and there is no formal link between the carrier and their product. However, the Department of Labor fiduciary rule still says that carriers are directly responsible for maintaining these producers’ action documents and annually reviewing those documents to gauge the compliance of their producers’ strength with the Department of Labor as a whole.
Another serious complication: a product may have multiple carrier appointments, and each carrier can have its own DOL compliance processes. Therefore, depending on the carrier product that ends up in the hands of the consumer, the producer will have to remember one of the 20 different processes they need to follow.
So providing real documentation and oversight is a real challenge. How does one eat an elephant? One. bite. in. time.
Best practices for documentary assignments
Mitigating disputes and eliminating inappropriate compensation structures. Remember how mitigating, compensating, and documenting are triple poo of control? Never rule out how beneficial it is to exercise the first two in order to relieve stress on the third. Ending conflicts in the early stages is a great way to recruit and retain good clients when they realize there are also fewer hoops they can get through to do their job right.
Industry standardization. The Department of Labor sets requirements for producers such as using a process, collecting asset estimates, and taking a systematic approach to reviewing customer positions and arriving at justification for recommendations. If the requirements are the same for everyone, why should there be a hundred different processes to document them?
Upgrade your technology. We wouldn’t be AgentSync if we didn’t remind you that powerful, integrated technology can make documentation easier for producers while making it easier for your team to review and analyze your documentation and product compliance. Instead of combing through systems to match case numbers and customer names across PDFs and spreadsheets, consider software that can provide these insights and automate some parts of the credit compliance documentation process.
The fiduciary base from the Ministry of Labor is not the only criterion for annuity obligations
Countries also adopt NAIC Convenience in pension transactions Model Regulations No. 215 Which we covered regarding insurance company duties on the blogInsurers will need to align state interpretations of their suitability to the obligations set out in the Department of Labor’s fiduciary rule.
AgentSync can’t help you judge the hearts of your producers. But it can make it easier to maintain full compliance and documentation by synchronizing product information with the National Insurance product registry, and making it easier to coordinate data across systems. To see how we can help your organization stay compliant, watch the demo.