Insurance intermediaries will need to reserve 1 percent of annual premium from fixed annuity sales and sell at least $1.5 billion in fixed annuities for each of three preceding years to qualify as a financial institution under the Department of Labor’s class exemption.

The class exemption allows insurance intermediaries such as independent marketing organizations (IMOs) to sell fixed annuities under the best interest contract exemption of the DOL’s conflict of interest rule, also known as the fiduciary rule. The requirements are not similarly imposed on other entities considered financial institutions, such as banks, broker-dealers and registered financial advisors (RIAs).

The fiduciary rule requires that sales of fixed indexed annuities with retirement funds to be conducted under the best interest contract exemption (BICE), which many in the industry has called onerous.

Under the class exemption, advisors selling a fixed annuity would be required to provide an annuity-specific disclosure that the advisor orally reviews with the client and both parties sign. The disclosure would be required with the application.

IMOs would also need an annual third-party audit. The industry has 30 days to comment on the DOL’s latest amendment to the rule, which is effective April 10.

IMOs, through independent agents, sell about $35 billion worth of FIAs every year, about half of the $60 billion in FIA sales projected for 2016. In 2015, independent agents sold about 63 percent of all FIAs.

While the DOL’s latest proposed requirements are designed to put IMOs on a par with other regulated financial services companies, RIAs aren’t subject to the same restrictions under the fiduciary standard.

Collateral Details and Aggregate Amounts

To ensure enough collateral, or reserves, to meet future liabilities, IMOs will have to obtain fiduciary liability insurance coverage, or cash bonds, banks certificates of deposit or U.S. Treasury bonds, “or a combination of all of these,” DOL regulators said. The total would have to equal to at least 1 percent of the average annual amount of premium sales of fixed annuity contract sales by the IMO to retirement investors, the DOL also said in a filing Wednesday morning.

An IMO with sales of $2 billion, for example, would have to set aside $20 million in collateral under the DOL proposal.

DOL regulators have also proposed that IMOs transact annual annuity sales averaging at least $1.5 billion in premiums over each of the three prior fiscal years, a threshold that equates to the sales of the top 20 insurance companies.

A premium threshold is designed to ensure that IMOs selling FIAs under the class exemption are “well-established entities” with a history of financial stability and operational capacity, the DOL said.

There are 22 IMOs seeking financial institution status before the DOL.

All written comments and requests for a hearing concerning the class exemption should be sent to: Office of Exemption Determinations by any of the following ways, identified by ZRIN 1210-ZA26:

  1. Federal eRulemaking Portal: at Docket ID number: EBSA-2016-0026. Once there, follow the instructions for submitting comments.
  2. Email to: [email protected].
  3. Fax to: (202) 693-8474
  4. Mail: Office of Exemption Determinations, Employee Benefits Security Administration (Attention: D-11926), U.S. Department of Labor, 200 Constitution Ave., NW, Suite 400, Washington, D.C. 20210
  5. Hand Delivery/Courier: Office of Exemption Determinations, Employee Benefits Security Administration, (Attention: D-11926), U.S. Dept. of labor, 122 C St., NW, Suite 400, Washington, D.C. 20001.

All comments and hearing requests must be received by the end of the comment period.

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