We explore how the Department of Labor's final rule expanding the definition of fiduciary investment advice for advisers to retirement plans, participants and beneficiaries will affect the insurance industry.

1. DOL Fiduciary Rule: How it affects the
insurance industry
Presented by:
Johan Joseph, Principal
Melissa Dimitri, Director

2. © 2016 Grant Thornton LLP. All rights reserved. 2
Protect investors from conflicting financial advice1
2
3 Minimize disruption to industry practices
On April 8, 2016, the Department of Labor (DOL) issued a final rule expanding the definition
of fiduciary investment advice for advisers to retirement plans, participants and
beneficiaries. Objectives of the rule:
Increase transparency

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…is about fiduciary obligations.
• Advisors act in their clients' best interests
• No financial incentives that could create
conflicts of interest
• Disclosures
• Ensure customers are aware of their right
to all fee information
• Written documentation that they are acting
in their clients' best interests
What is the new DOL fiduciary rule?
The DOL rule…
• Expands the definition of what constitutes
fiduciary investment advice
• Covers all financial professionals offering
investment advice to retirement accounts
• Precludes advisers from receiving payments
that create conflicts of interest, unless they fall
under one of the exemptions outlined in the
rule

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What is the new DOL fiduciary rule?
The DOL rule does not apply in certain
circumstances…
• When transactions are between independent
parties that have financial expertise
• When advisers offer basic education
information and not specific, individualized
advice
• When non-compensated advice is provided to
employees of a fiduciary
• For valuation opinions provided for statutory
requirements
• For providers of independent platforms that only
act as plan aggregators
…and includes key exemptions.
• Best interest contract exemption (BICE): In
cases when there is a need to offer protection from
certain aspects of the brokerage model that could create
conflicts
• Principal transaction exemption: In cases when
financial advisers are also acting in the capacity of
principals and are providing access to debt securities
from their own inventory
• Level fee exemption: In cases when the fiduciary
charges a fixed fee or a level fee based on a fixed
percentage of assets under management

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What are some implications of the current insurance infrastructure?
1
2
Product offerings
3
Business processes and controls
The rule affects:
Workforce training and accreditation
4
Distribution channels

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Product offerings
Commissioned retirement investment products, especially
variable and indexed annuities, will be phased out in favor of
fee-based products.
Insurers may start to emphasize financial planning services
and managed accounts versus pure product sales.
Some insurance carriers and producers may cease selling
investment products in favor of more traditional insurance
products that are generally exempt under the rule.
Product manufacturers and distributors will look to level set
fees and commissions across similar product types.

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Distribution
channels
Some FMOs are launching broker/dealers to gain financial
institution status; others are partnering with broker/dealers to
sell products under their umbrellas.
Many independent insurance producers sell products via field
marketing organizations (FMOs), but FMOs were denied
financial institution status in the rule, leaving them unable to
sell most commissioned retirement investment products.
Roboadvisory platforms will grow due to their low cost and
ability to provide objective investment advice. Some
roboadvisers will need to be modified in order to comply with
the rule as they only sell proprietary products and/or do not
offer level fees.
Broker/dealers will need to carefully evaluate and potentially
rationalize their distribution models to manage risk.

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Workforce
training and
accreditation
Some producers may choose to become registered
investment advisers to be better equipped to provide fiduciary
advice. Others may leave the industry entirely.
Many insurance producers that sell retirement products are
used to a suitability-only standard and may not have the
background/education to provide fiduciary retirement advice.
Adviser compensation should be closely evaluated to
ensure it is motivating the right behaviors while preserving
income potential.
Insurance training programs will need to be revamped for
the higher standard of care and should include all employees
who could potentially interact with a client.

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Business
processes and
controls
Some emerging leading practices:
• Standard frameworks for advice across the
organization
• Prescribed data-gathering procedures for client service
• Leveraging true level fees, objective roboadvisory
platforms
• Technology tools/platforms with built-in fiduciary-
friendly features
• Implementing a comprehensive HR strategy that
addresses hiring, fiduciary training and appropriate
compensation models
Organizations should develop processes and controls that
minimize the risk of potential conflicts of interest and/or
inappropriate advice.

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Timing is key
The issuance of the DOL’s final rule ushers in a new era of regulation and oversight in
the world of retirement planning and advice. And the stakes are high if organizations
can’t adapt quickly to this new paradigm.
• April 10, 2017: Rule becomes effective.
• Jan. 1, 2018: Full implementation of the BICE occurs.

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Start preparing now
Leadership at all levels must understand the scope and magnitude of the changes to come.
To adequately prepare, institutions should take the following steps:
Create and administer
training courses for all
personnel affected by
the rule.
Stat to go here
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Ensure technology
platforms are DOL
compliant, and
compatible with those
of your strategic
partners and vendors.
Update policies,
procedures and internal
controls to help
manage risk.
Rationalize and
optimize product
portfolios and
distribution channels.

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Help is here
Contact these individuals for your DOL fiduciary rule needs:
Johan Joseph
Principal
T +1 312 602 8618
E johan.joseph@us.gt.com
Melissa Dimitri
Director
T +1 312 602 8367
E melissa.dimitri@us.gt.com
Deborah Howard
Manager
T +1 980 282 1993
E deborah.howard@us.gt.com
Bill Aheron
Director
T +1 704 632 3545
E bill.aheron@us.gt.com

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