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Obligations of the carrier and the agency according to the DOL’s trust rule

Obligations of the carrier and the agency according to the DOL's trust rule

This post is part of a series sponsored by AgentSync.

The insurance industry thrives on rewarding top-selling agents, but the Department of Labor̵

7;s (DOL) trust rule states that traditional sales incentives linked to annuities pose a challenge to compliance for carriers and producers working with qualified pension funds.

Since the DOL trust rule reached full implementation this year, we thought it was worth taking a look at the obligations that carriers should look at when they get their houses in order.

As a reminder, although this is intended to provoke thoughts and discussions about your obligations, we are not your lawyers or compliance officers. You have to do your own due diligence, period.

Sales rewards in the insurance industry

Captive? Independent? Life and health? property and damaged? It does not matter where you end up in the industry, the odds are that if you sell insurance, you have historically had some form of incentive structure beyond a commission.

  • Incentive trips and cruises for product sales
  • Production-related commission bonuses
  • Marketing credits or production-related business freebies

These loyalty rewards and sales incentives are an area for scrutiny for producers who can sell annuities or permanent life insurance policies that are ultimately funded by retirement plans.

Who has what information?

Finally, DOL confirms that carriers are responsible for monitoring producer activity and compliance. But before agencies easily relinquish their responsibilities and drop out at sunset, it’s worth keeping in mind:

  1. The NAIC model that covers best practices still holds agencies (aka business units) responsible for following the same practices as producers
  2. There is a growing tidal wave of states adopting the NAIC model
  3. State law replaces and supplements these federal regulations – it is BOTH / AND NOT SPIRITS / OR

Also keep in mind that smaller agencies and intermediaries such as IMOs / FMOs / NMOs / brokerage firms / aggregators do not exist in any small part to serve their affiliated producers, which may involve handling administrative tasks such as paperwork and documentation. So helping manufacturers maintain compliance can still be a key responsibility of your agency.

The carrier’s obligations according to DOL’s trust rule

Apart from the supporting roles and services of the agencies, DOL places specific supervisory tasks entirely on insurance companies as they are regulated as financial institutions. These are:

  • Limitation
  • Replacement
  • Documentation

It is worth noting that DOL’s guidance places these three supervisory tasks on something of a triangular balance. If you do not do much to alleviate undue incentives in areas that may be problematic, then it is better to sharpen your compensation and be prepared to document and provide serious oversight of each producer’s sales. If you mitigate areas where there is the greatest problem and tighten your compensation controls and supervision, the documentation of producer processes need not be as strict.

The insurance companies’ obligations to mitigate according to DOL’s trust standard

According to the DOL’s trust rule, companies that have these supervisory responsibilities have an obligation to mitigate factors that cause conflicts.

Practically speaking, what can it look like? The following are some examples of how companies can mitigate conflicts of interest:

How DOL affects product- and situation-specific conflicts

According to government regulators, misrepresentation of annuity sales (especially fixed indices and variable annuities) is a constant issue. As a carrier, you probably know that annuities – exchanging one annuity for another – are a problem, so you can set strict guidelines for when appropriate and examine the specific situations carefully. Or, if 401 (k) -to-IRA rollovers is one of those situations where you find that producers are most likely to incorrectly offer an annuity, then you can set very strict situational guidelines for what a producer can do or give advice in question. on means of turnover.

How the DOL rule affects incentive trips, cruises and sales measurement events

Frankly, incentive travel that is exclusive to a single product or type of product has been a struggle for double-licensed manufacturers / advisors who hold both insurance and securities licenses for quite some time. The DOL guideline is clear; it does not prevent carriers from rewarding and recruiting top-selling agents. It says that carriers should stop pushing for product-specific quotas and incentives.

How the DOL rule affects preset menus

Preset menus with a guideline for appropriate audiences and sales can be a great way for carriers to help potential customers alleviate decision fatigue to find products that suit their needs. Poorly done, but preset product menus can also be a way to exclusively run your most profitable products in a way that discounts the specific needs of the consumer. Limitation in this area means setting fair criteria for what makes the menu, and possibly having a few different menus for different goals and life stage criteria.

Compensation structures for insurance companies according to the DOL rule

DOL’s rule has a lot to say about a carrier’s obligation to terminate compensation structures that drive the advantage of certain products over others. If a carrier can adjust the commission incentives and ensure that annuities and other fixed or variable contracts do not have a higher incentive than other fair products, carriers do not need to provide as much supervision to ensure that producers treat consumers fairly. Remove oversized incentives, and you will make it so much easier for a producer to do his best for the consumer.

How carriers handle documentation and analysis of producer data under a trust standard

Perhaps the most anxious requirement is to document the supervision of your producers.

DOL’s trust rule definitely takes the position that your downstream producers are your responsibility. This has already been a trend in the industry; Think of the wave of states like Texas and Kansas that have enacted laws to maintain carrier appointments for all end manufacturers who may be selling that carrier’s products.

But this comes with very real difficulties for carriers.

For one thing, manufacturers can be many agencies away from their operator. Carriers often work with producers in states where there is no time, no official link between the carrier and their producer. Nevertheless, the DOL’s trust rule still states that carriers are fully responsible for maintaining documentation of these producers’ documents and reviewing that documentation annually to measure their producer force’s DOL compliance as a whole.

Another serious complication: A manufacturer can have many operator appointments, and each operator can have its own DOL compliance processes. So, depending on which carrier’s product falls into the hands of a consumer, the manufacturer must remember which of the 20 different processes they have to follow.

Making this less cumbersome for your producer partners – and yourself – and maintaining real due diligence will require more than just kitchen paper.

So it’s a real elephant of a challenge to provide true documentation and supervision. And how do you eat an elephant? One. Bite. On. A time.

Best practice for documentary assignments

Reduce conflicts and eliminate incorrect compensation structures. Do you remember how mitigation, compensation and documentation is a three-legged stool of oversight? Never doubt how useful it is to practice the first two to reduce the pressure on the third. Ending conflicts further upstream is a great way to recruit and retain good agents when they realize that there are also fewer rings to jump through to do the right thing for their customers.

Standardize in the industry. DOL describes requirements for producers such as using a process, collecting asset estimates and taking a systemic approach to review customer situations and arrive at a justification for recommendations. If the requirements are the same for everyone, why should there be a hundred different processes for documenting them?

Upgrade your technology. We would not be AgentSync if we did not remind you that efficient, integrated technology can make documentation easier for producers while making it easier for your team to review and analyze your documentation and compliance with producers. Instead of going through systems to match case numbers and customer names via PDF files and spreadsheets, think about what software can provide these insights and automate certain parts of the documentation process for trust fulfillment.

DOL’s trust rule is not the only standard for annuities

When states adopt the NAIC Model Ordinance for Annuity Transactions No. 215, which we have covered with respect to the insurance companies’ obligations on the blog, the insurance companies will need to align the state’s interpretations of suitability with the obligations set out in the DOL’s trust rule.

AgentSync can not help you judge the hearts of your producers. But it can make it easier to maintain full-stack compliance and documentation by synchronizing producer information with the National Insurance Producer Registry, and making it easier to coordinate data between systems. Watch a demo to see how we can help your organization follow it.


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