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May 2024 – 7 Ideas and Views Newsletter by Van Mueller
The whole newsletter WILL NOT be about the Department of Labor Rule, however it is very important that you read and understand what is about to happen to your career. Included will be how to fight the rule and if it remains, how to succeed despite the rule.
On April 23rd, 2024, the Department of Labor (DOL) released their final Fiduciary Rule. The rule will take effect on September 23, 2024. The DOL says that the rule will protect retirement investors from improper investment recommendations and so-called harmful conflicts of interest.
Just like previous attempts, the rule redefines the definition of who is a fiduciary under ERISA, the “Employee Retirement Income Security Act of 1974.” The DOL only released this redefinition last fall and allowed only a 60-day comment period. This is very unusual.
The DOL says retirements investors will now be able to trust the investment advice provided and will know that the provider is working in their best interest to make unbiased decisions.
With the final rule in place, financial institutions that oversee investment advice providers must have policies in place that include procedures to manage conflicts of interest and insure that those providers, all of us, follow those guidelines.
The DOL claims that the reason for the change is because the current fiduciary definition which was adopted in 1975 became outdated. This was caused by the move from traditional pensions to 401(k) retirement plans. Now, these participants and individuals became more responsible for their retirement security than they were previously. The purpose of the new rule is to update standards that are not providing the needed protections that the American workers deserve in retirement.
Investing for retirement has changed and it is important that the regulations the DOL has updated are more responsive to these changes so American workers can achieve a secure retirement that they work a lifetime to ultimately achieve. Those sound like good arguments. They are not reasonable or well thought out arguments and will actually have an opposite effect on the people the Department of Labor purports to serve.
The DOL's arguments are not reasonable or well thought out arguments and will actually have an opposite effect on the people the Department of Labor purports to serve.
The rule as written will apply when advisors and agents give compensated investment advice to retirement plan participants, IRA owners and plan officials who are responsible for administering plans and managing assets.
This would even apply to life insurance salespeople and companies who want to use qualified money of any kind to fund life insurance policies. It would also apply to non-qualified annuities like fixed index annuities, fixed interest annuities and variable annuities because annuities are considered a retirement vehicle.
The Insured Retirement Institute (IRI) declared that the rule could actually cause significant harm to consumers. Why? Because the rule has only insignificant differences from the 2016 Obama-era DOL rule which was eventually struck down by the Fifth Circuit Court of Appeals in 2018.
In the short amount of time that the 2016 rule was used, it caused millions of consumers to lose access to the professional guidance that they could choose and would not allow them access to products and strategies that would help them achieve a financially secure retirement. There are many in the financial and insurance service industry who are now declaring that the new rule would have comparable or even worse results for the American people.
In a 2017 Deloitte study about the 2016 Obama Fiduciary Rule, it was determined that immediately 29 percent of brokers and agents limited their services, and this is important: 95 percent limited the products they made available. They either eliminated or limited the asset classes that they offered. Almost everyone believes it will be even worse this time because it covers non-qualified financial and retirement situations as well. It will even include one time advice about whether to roll over a 401(k) into a new retirement account like an IRA or an annuity.
Under current law, one time advice is not normally treated as fiduciary advice. Millions of Americans, however, receive that exact advice when they are retiring and deciding how to handle their 401(k). President Biden and the DOL insists that this is the most important advice people ever receive and that conflicts of interest are inevitable.
The new rule would put financial and retirement advice out of reach for most Americans. When Americans currently need as much access to retirement advice than they’ve ever needed before, the new rule would make it impossible for agents and advisors to serve these people. The proposed regulation would make it much more expensive and difficult, and maybe even impossible, for most consumers to access reliable professional assistance.
The proposed regulation would make it much more expensive and difficult, and maybe even impossible, for most consumers to access reliable professional assistance.
Why? The rule adds significant liability and takes away compensation. Bringing all retirement plans and individual retirement accounts under the Employee Retirement Security Act of 1994 rules that ERISA plans pay no more than reasonable compensation to service providers which also includes agents and advisors. The Department of Labor has not defined what will be reasonable compensation. Under the new rule it will be possible to offer prohibited transaction exemptions that could allow additional forms of what is called conflicted compensation. There are major limitations.
Distributions of insurance products are normally compensated for their sales activity. They mostly receive commission from the product manufacturer. If that salesperson is required to become a fiduciary than all the commissions that are received become prohibited kickbacks. These kickbacks are illegal unless the Department of Labor makes an exception available. There are two exemptions which allow an annuity seller to receive a commission.
1. Prohibited Transaction Exemption 84-24 which began in 1977.
2. Prohibited Transaction Exemption 2020-02 which is an alternative that was created by the Trump administration.
These exemptions have been changed several times over the years. PTE 84-24 allows products to receive commissions when retirement plans and IRA’s purchase annuity and insurance contracts. Under PTE 2020-02, if an investment professional gives fiduciary advice to a retirement investor the “financial institution” is also considered a fiduciary.
There will be very few financial institutions that will stand behind an agent or advisor fiduciary. Therefore, we will only see a small PTE 84-24 exemption. That will dramatically reduce the number of products available to the consumer.
Let’s review: The Department of Labor has published the Retirement Security Rule. The rule defines who qualifies as a fiduciary under the Employee Retirement Income Security Act. The rule clarifies when insurance agents and financial professionals must act in the best interest of the client. The Department of Labor also released a set of amendments to Prohibited Transaction Exemptions, which are specific requirements for fiduciaries engaging in transactions that could create conflicts of interest.
Transactions that would have normally been covered by the SEC’s Regulation Best Interest which took effect in 2020 would now be ruled by the Department of Labor’s Retirement Security Rule which requires a fiduciary responsibility as defined by the government.
The government defining a fiduciary responsibility to the American people. Can you even imagine? Our government wastes trillions and trillions of dollars and believes they can legislate how to be a fiduciary to our customers.
Our government wastes trillions and trillions of dollars and believes they can legislate how to be a fiduciary to our customers.
There will be much more on this issue in the days, weeks, and months ahead. Please give this serious consideration. To succeed in our industry, we must treat our customers in a manner that puts our customers’ welfare first. You can’t survive in our industry for long if you don’t put your customers’ well being first. We don’t need arbitrary rules or requirements from the government to understand that reality.
We have almost daily examples of people who were purported to be “fiduciaries” and they stole and continue to steal billions of dollars. Why is the government not more focused on those people rather than on the little guy making a small amount of commission for delivering in most cases beneficial retirement advice? This rule will be challenged in court again and will lose again. In the meantime, during one of the most critical times in American history, most Americans will NOT have access to beneficial and valuable retirement advice because of this temporary misuse of government power.
Finally, please read Idea #1 thoroughly and multiple times. It is one of the most complete discussions of all the information that is pertinent to this new rule. We will prevail, but at what cost to the lives of the American people?
Also, if you ever needed a reason to be inspired to become a member of NAIFA, this is it. NAIFA is the major organization that advocates for the agent. After reading this I can not imagine any of us not wanting to support NAIFA. For the record, NAIFA stands for the “National Association of Insurance and Financial Advisors.” Please join as soon as possible! https://belong.naifa.org/join
Next month we will talk about the great economic disaster headed our way that is called “stagflation.” That is when the economy ceases to grow, or it grows very little and at the same time we have persistent inflation. We will discuss all the implications and why strategies that employ cash value life insurance, term life insurance, annuities and mutual funds can not only protect our customers but actually allow them to take advantage of stagflation. It is a complex subject that requires more than a few paragraphs to explain and understand. Serious stagflation lasted from 1973 to 1982: A decade of serious economic challenges. We Can Prepare For Stagflation Successfully.
“Stagflation”: that is when the economy ceases to grow, or it grows very little and at the same time we have persistent inflation.
Finally, I want to begin to share some additional questions every other month that are more focused on a particular segment of the social economic division of our economy.
I have had several subscribers of this newsletter ask for more questions to inspire business owners and high net worth prospects to first allow an appointment and then be inspired to take action. It is a wonderful idea and I hope it will be an additional benefit of this newsletter.
Here are several questions that can help you open doors to business owners. Before we start don’t just think in terms of what to ask an appointment. Please consider asking questions of business owners in your every day lives so you can get more appointments. Please remember prospecting is a continuous, 24 hour per day, wherever your feet are, proposition. Shouldn’t you think in terms of starting a conversation about their business rather than a conversation about your credentials, your company and your products? Shouldn’t all the questions be about the business owner and their business? Isn’t it what they like to talk about more than anything else? Here are some starting questions to ask business owners after you have asked about and praised their businesses. Take a few minutes. Prove that you are really interested in them AND their opinions before you start trying to help them buy something from you.
Finally, don’t lie. If you don’t understand their business, don’t fake that you do. If you fake that, what else would you fake? Just ask questions. I live in Wisconsin. I don’t hunt or fish. Yet, I am interested in all kinds of information about what they do and why. Is it relaxing? Is it exciting? Do you eat what you shoot/catch? Is it more fun to go alone or with other people? Is it still fun if you don’t get anything? You get the idea.
Wouldn’t that be a beneficial conversation for a business owner to share information about their business that they maybe haven’t thought about in years? You become interesting because you are interested. Don’t Just Ask Questions. Have A Conversation. Have A Real Back-And-Forth Filled With Enthusiasm For What Is Being Shared With You. You will be surprised by the outcome. Here are some questions.
Have a conversation. Have a real back-and-forth filled With enthusiasm for what is being shared with you.
- How would you feel if it turned out that your business made more for the Internal Revenue Service and the government than it made for you and your family? Would you work as hard on your business? Would you leave it like that?
- Did you know that as many as 50 percent of business owners’ exits or business failures are involuntary due to death, divorce, disability, disasters or disagreements? What if you could reduce or eliminate those concerns? Wouldn’t that help your business grow exponentially?
- Almost 90 percent of business owners have their financial wealth locked up in their business. How do you plan to unlock that wealth for you and your family at your convenience?
- Will you keep the family in the business or will the business end when you retire, become disabled or die? Do you have a strategy for continuation of the business?
- If we have another serious economic disaster, what if there was a way to position your company to take advantage of that economic disaster rather than be hurt by it? When would you want to know about this information? Before or after the Economic disaster?
- Isn’t government going to require business owners to support more and more of the government’s responsibilities? Isn’t that already happening? How can you make sure that the biggest beneficiary of your business is you and your family?
- What if there was a way to build a tax-free supply of money that could be used for any purpose? Would you want to know about it?
- Will taxes on your business continue to increase? Would you like to know how you can stay in control rather than be controlled by the Internal Revenue Service and the government?
That is just a few questions that will help you brainstorm additional questions so you can have wonderful conversations with business owners.
Where should you prospect? How can you find business owners? Try to establish relationships with centers of influence for business owners such as CPA’s and attorneys. Join community and service organizations. Join your local Chamber of Commerce. Give consideration to working on charitable and non-profit boards of directors. Have conversations with everyone you do business with.
This could really be a beneficial way for you to expand your practice without spending additional money for leads.
Two additional things: Wouldn’t it be beneficial to learn some business owner language? It will help you connect. All of this will lead to opportunities for the following:
- Wealth Management Strategies
- Tax Management Strategies
- Income Solutions
- Charitable Strategies
With a little practice, you could become skilled at business speak. It Only Takes A Little Practice!!
Let's get started with this month's sales ideas.
Idea #1: Department of Labor Rule Information
It is so well written and covers both positive and negative aspects of the new rule with the ultimate goal being overturning this new fiduciary rule.
I would find a way to access David Macchia while this process is progressing. He provides valuable insight into such misrepresentations as commission prejudices, regulatory unfairness, different types of money and what the Department of Labor does not understand about what we do.
David explains why annuities are so vital and that millions of Americans will be harmed because they don’t have access to information and strategies that annuities provide.
Please, if you don’t read anything else in this month’s newsletter, at least read this. It is vital that you understand the coming challenges presented by the Department of Labor.
Title: Why All Financial Professionals Should Support Overturning The DOL’s Fiduciary Rule
https://www.fa-mag.com/ (Financial Advisor, April 23, 2024)
https://www.fa-mag.com/news/why-all-financial-professionals-should-support-the-overturning-of-the-dol-s-fiduciary-rule-77833.html
Idea #3: Taxes Have Reached 50 Percent again
Five states, including California, New Jersey, Oregon, Minnesota, and New York now have reached a possibility of a combined federal and state 50 percent tax rate. In California it is almost 60 percent.
States cannot print money like the federal government. Won’t it then be true that income taxes, property taxes, sales taxes and fees of all kinds will have to increase? Isn’t it also true that those increases will not be enough? Won’t states and cities have to ask for bailouts from the federal government who CAN print money or see a drastic reduction in services provided by those governments?
Won’t this become more serious in the future? Don’t we need to inspire our customers to plan for all of this before it gets beyond their control? Aren’t these important conversations we need to have with ALL our customers as soon as possible? 50 percent taxes. WOW!
Title: Taxes Hit 50% for Some Americans in Five States
https://www.newsweek.com/ (Newsweek, April 26, 2024)
https://www.newsweek.com/taxes-hit-50-percent-five-states-capital-gains-1894734
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