This month’s Compliance Corner blog entry will focus on frequently asked questions we are receiving considering the June 9th implementation of DOL’s Fiduciary Rule, specifically at it relates to PTE 84-24 and business submitted to FIG.
June 9th came and went without the sky falling, as some had predicted. I’m not suggesting that things didn’t change in our industry, but business did not come to a grinding halt. We find ourselves in a new environment where the DOL’s Impartial Conduct Standards rules the day. While we generally operated in the spirit of the Impartial Conducts Standards anyway, the primary requirement that came of the June 9th implementation boiled down to one new document, the Disclosure Statement.
The Disclosure Statement is a required document that spells out key items that our customers must be informed of prior to a transaction involving qualified money. This document discloses things such as the Agent compensation, various material conflicts of interest, product fees and expenses to name a few key elements. Most of the questions we have received since June 9th involves the disclosure of commissions, books and records requirements, and material conflicts of interest. While not intended to be an exhaustive list, I will address a few of the most common questions we have received so far.
Question – My company receives an override for the transaction. What do I disclose to the customer?
Answer – PTE 84-28 places the disclosure obligation on the individual who makes the recommendation. Under PTE 84-24, the Agent has the obligation to disclose the compensation they receive for the recommended transaction. The company(ies) the Agent is affiliated with are not required to make any additional disclosures as they are not the ones making the recommendation.
Question – What is a material conflicts of interest and how to I disclose this?
Answer – A material conflict exists when a person has a financial interest that a reasonable person would conclude could affect the exercise of its best judgment as a fiduciary in rendering advice. All cash and noncash compensation received by the should be considered in determining whether a material conflict of interest exists. FIG compiled the various conflicts it was aware of that Agents may receive through its platform and included this information within the Disclosure Statement. There may be other conflicts FIG is not privy to that other FMO’s or AFMO’s provide to an agent. As the Disclosure Statement is a template document, the Agent is able to make changes or updates necessary to disclose their material conflicts of interest. Agents should consult their own legal counsel on their specific situation to ensure they have made adequate disclosure.
Question – What do I do with the Disclosure Statement once it is completed?
Answer – First, Agents must provide a copy of the completed and signed Disclosure Document to the customer. The disclosure obligation rests solely on the Agent who makes the recommendation to the customer, and hence, the Disclosure must be maintained within the Agent’s books and records for six (6) years to evidence this requirement was completed. FIG will not accept any copies of the Disclosure nor will it maintain copies of the Disclosure within its books and records. Most insurance companies do not require a copy of the disclosure and many only require a check-box type certification that the requirement was completed within the application.
We will share more DOL news and information as it becomes available. As always, should you have any compliance questions, we are always here to help. Please feel free to send an email to firstname.lastname@example.org.