84-24 Disclosure Form Template

Background

Significant recent regulatory changes for the industry may affect your business. The U.S. Department of Labor finalized the rule, “Definition of the Term ‘Fiduciary’; Conflict of Interest Rule – Retirement Investment Advice” (Final Rule), with an effective date of June 9, 2017. The Final Rule expands the definition of “fiduciary” under federal law to include a broad range of financial advisers who provide recommendations with respect to assets of a retirement plan or IRA. This makes individuals who provide that advice subject to the applicable fiduciary obligations.

The Rule and You

You are receiving this Legal Bulletin because you are appointed with Reliance Standard Life Insurance Company to sell annuity contracts. This Legal Bulletin outlines our understanding of your obligations under the Final Rule during the period from June 9 to December 31, 2017 (the Transition Period), after which changes may occur. Detailed information relating to the Final Rule is available at the DOL’s website(https://www.dol.gov/ebsa/regs/conflictsofinterest.html) and you are encouraged to consult with your own legal or compliance professional for specific advice and assistance regarding the Final Rule.

Insurance agents selling annuity contracts to retirement investors will generally be treated as investment-advice fiduciaries under the Final Rule, subject to prohibited transaction rules that prohibit you from receiving transactuion-based compensation, such as commissions, unless you satisfy the conditions of a Prohibited Transaction Excemption (PTE).

This bulletin is intended to remind you that you are responsible for and obligated to comply with laws, regulations and rules applicable to the sale of our products, including compliance with the Final Rule. You are solely responsible for fulfilling all fiduciary and other obligations resulting from the Final Rule and applicable PTEs. In this regard, please note that:

• Starting June 9, 2017, you must satisfy the elements of a PTE whenever you receive compensation for your advice (e.g., recommending an annuity to an IRA or ERISA‐covered retirement plan).
• Two PTEs are available for annuity transactions under the Final Rule – the Best Interest Contract Exemption (BICE) and Prohibited Transaction Exemption 84‐24 (PTE 84‐24) – to provide relief from the prohibited transaction provisions.
  • Under BICE, advice recommendations must be overseen by a “financial institution” (as defined in the Final Rule) that ensures that agents follow the “Impartial Conduct Standards.”
  • Under PTE 84‐24 formal supervision by a “financial institution” is not required but agents are still required to adhere to the Impartial Conduct Standards.

Under the “Impartial Conduct Standards,” an agent is required to

• Only give advice that is in the “best interest” of the retirement investor; i.e., the advice must be based on the interests of the customer, rather than the competing financial interest of the adviser or firm;
• Charge no more than reasonable compensation; and
• Make no misleading statements about investment transactions, compensation, and conflicts of interest. In this regard, failure to disclose a material conflict of interest is considered to be a misleading statement.

PTE 84‐24 is available in connection with sales of traditional fixed rate annuities as well as fixed indexed annuities. During the Transition Period, we assume that if you are an independent agent, you will use PTE 84‐ 24 whenever you recommend the purchase of a Reliance Standard annuity with assets of an IRA or retirement plan(i.e., a qualified transaction) and receive compensation for this advice. In other words, PTE 84‐24 will be used when an independent agent is the writing agent on a qualified transaction during the Transition Period.

In addition to requiring adherence to the Impartial Conduct Standards, compliance with PTE 84‐24 during the Transition Period requires that a written disclosure be provided to the customer that discloses:

• The agent’s relationship to the carrier;
• The agent’s commission (expressed as a percentage of gross annual premium payments);
• A description of the charges, fees, penalties and adjustments applicable to the recommended product; and
• The agent’s conflicts of interest relevant to the services being provided or other actions being taken in relation to investment decisions.

The customer must acknowledge receipt of this disclosure in writing and the agent should keep copies of all documents involved in the sale for at least six years. Copies of the disclosure should be retained by you and should not be submitted to Reliance Standard with the solicitation paperwork.

Under PTE 84‐24, practical aspects of compliance are the agent’s responsibility. While some carriers may provide you with tools to assist in compliance, ultimately it is your responsibility to put them into action.

We will be providing you with a template of the PTE 84‐24 disclosure and acknowledgement form that you can use to assist with your efforts to comply with the Final Rule. In all events, please be sure that your PTE 84‐24 compliance process for each qualified transaction is complete before submitting the related application to us.