A Different Perspective on DOL Tony Boquet, Vice President, Education & Business Development The American College of Financial Services Cailie A. Currin, President & CEO Currin Compliance Services, Inc. May 23, 2018 American Fraternal Alliance, 2018 Symposium Chicago, Illinois For Presentation Purposes ONLY © 2018 Currin Compliance Services, Inc. All rights reserved

What is DOL Fiduciary Rule Status? Legally: Vacated by the 5th Circuit Court of Appeals DOL has decided not to appear to Supreme Court or ask for other relief States and Consumer Organizations attempted to intervene and were denied Order applies nationally Practically: Depends on what was done to prepare for its implementation What is DOL Fiduciary Rule Status? For Presentation Purposes ONLY © 2018 Currin Compliance Services, Inc. All rights reserved.

Why was the DOL rule vacated? Two key decisions: US DOL did not have the authority to adopt the new fiduciary advice standard. The court said the “Fiduciary Rule” is inconsistent with the rest of ERISA’s definition of “fiduciary” US DOL acted arbitrarily and capriciously The rule did not pass the test of reasonableness and it was in violation of the Administrative Procedurse Act. Why was the DOL rule vacated? For Presentation Purposes ONLY © 2018 Currin Compliance Services, Inc. All rights reserved.

Fiduciary Definition: Trust and Confidence not “mere sales activity” “…agencies are not free to adopt unreasonable interpretations of statutory provisions and then edit other statutory provisions to mitigate the unreasonableness...” For Presentation Purposes ONLY © 2018 Currin Compliance Services, Inc. All rights reserved.

Is the proposed SEC Advice Rule the same as the DOL rule? No On April 18, the SEC proposed an “investment advice rule” for broker- dealers. Not a uniform standard – maintains two- tiered standard Fiduciary Standard for Investment Advisers remains intact New, “Best Interest Standard” for Broker- Dealers Higher than “suitability” but not same as fiduciary. Applies to recommendations about securities transactions or an investment strategy involving securities. For Presentation Purposes ONLY © 2018 Currin Compliance Services, Inc. All rights reserved.

Comply with any policies and procedures that have been adopted Act consistent with any communications that have been provided clients Massachusetts filed charges against Scottrade earlier this year asserting that because the impartial conduct standards of the DOL fiduciary rule took effect June 9, 2017, Scottrade had added language to its brokerage and investment advisor compliance manuals to reflect that, saying the firm does not rely upon quotas, bonuses, contests and other things that would cause its employees to make recommendations that would not be in the best interest of retirement plan clients.  Then they implemented aggressive sales strategies, including sales contests, associated with their merger with TD Ameritrade. Cease and Desist Order Censure and administrative fine levied. What should we do now? For Presentation Purposes ONLY © 2018 Currin Compliance Services, Inc. All rights reserved.

What else is “out there”? Individual State Actions NY Proposed Suitability Rule Life and Annuity NAIC Review of Suitability in Annuity Transactions Model Regulation (#275) Energized Consumer Advocates Activated Plaintiff’s Bar What else is “out there”? For Presentation Purposes ONLY © 2018 Currin Compliance Services, Inc. All rights reserved.

NY Proposed Regulation Second proposed version just released. Anticipated final version over summer DFS says that they support consistency It is the only regulation to date to cover all insurance products and all distribution channels Explicitly applies to fraternals Applies to any recommendation that involves compensation to the agent. Different suitability information for term transactions vs. all others NY Proposed Regulation Regulation 187 For Presentation Purposes ONLY © 2018 Currin Compliance Services, Inc. All rights reserved.

To be in the best interest of the consumer: A recommendation must be based on an evaluation of the relevant suitability information and it must reflect the care, skill, prudence, and diligence that a prudent person acting in like capacity and familiar with such matters would use under the circumstances. The financial or other interests of the producer, insurer, or any party other than the consumer shall not be considered in any respect in making the recommendation. For Presentation Purposes ONLY © 2018 Currin Compliance Services, Inc. All rights reserved.

To be in the best interest of the consumer (cont): There must be a reasonable basis to believe that the consumer is reasonably informed about the product (favorable and unfavorable features included) Any differences between a fee-based version and commission-based version of product must be disclosed Has to be suitable The consumer has to benefit from certain features of the policy. For Presentation Purposes ONLY © 2018 Currin Compliance Services, Inc. All rights reserved.

NAIC Suitability in Annuity Transactions Model Regulation (#275) Actively being worked on at NAIC Many commentators on working drafts Meeting May 31 – June 1 of A Committee Annuity Suitability Working Group Chaired by Dean Cameron (ID Commissioner) Comments to be reviewed NAIC Suitability in Annuity Transactions Model Regulation (#275) For Presentation Purposes ONLY © 2018 Currin Compliance Services, Inc. All rights reserved.

What is new? What is being commented on? Industry coalition is proposing adding “best interest” to requirement that the recommendation be suitable Iowa Insurance Division – “consumer- focused approach in lieu of either best interest or suitable. Only NY seems to advocate moving beyond annuities. Many proposals regarding definition of “recommendation” For Presentation Purposes ONLY © 2018 Currin Compliance Services, Inc. All rights reserved.

What is new? What is being commented on? Many new definitions Suitable Best Interest Compensation Material conflict of interest Non-cash compensation Reasonable compensation For Presentation Purposes ONLY © 2018 Currin Compliance Services, Inc. All rights reserved.

Energized Consumer Advocates Consumer Federation of America and Center for Economic Justice both commented on NAIC draft Very broad definition of “recommendation” – suggestion to take action Wants “no private right of action” that is in the current regulation to be stricken from the revision Energized Consumer Advocates For Presentation Purposes ONLY © 2018 Currin Compliance Services, Inc. All rights reserved.

Activated Plaintiff’s Bar Current state of affairs generally Life and Annuity products are on their radar Activated Plaintiff’s Bar For Presentation Purposes ONLY © 2018 Currin Compliance Services, Inc. All rights reserved.

Questions? For Presentation Purposes ONLY © 2018 Currin Compliance Services, Inc. All rights reserved.