A pending government rule designed to ensure retirement investment advisers act in their clients' best interests rather than their own may impact the way financial and insurance companies are able to plan incentive trips and meetings, two industry associations are warning.
On March 29, the Financial & Insurance Conference Planners (FICP) and Society for Incentive Travel Excellence (SITE) issued a joint statement that essentially warns incentive and meeting planners to be aware of the potential impact of the U.S. Department of Labor's (DOL) forthcoming Conflict of Interest rule. This rule will redefine the "fiduciary responsibility" -- essentially the requirement that financial advisors act in their customers' best interest -- of retirement investment advisors under the Employee Retirement Income Security Act (ERISA). The rule particularly focuses on the sale of annuities.
As a result, "financial services firms will likely be forced to eliminate certain incentives or significantly change compensation structures," said the statement issued by SITE and the FICP. "These changes could reduce opportunities to foster business growth, support the economy, and motivate and reward top-performing employees."
While the rule's main impact will be on pay and commissions, "we're trying to encourage our planner members to be involved in the conversations within their companies on how they're handling the potential impact of the regulations, and what impact that might have on the size of their meetings, the number of people that might qualify, and any changes in the future that might impact their contract and commitments," said Steve Bova, CAE, executive director of the FICP.
That said, the rule may well cause a substantial public focus on incentive travel, and has the potential to reignite the public perception issues that caused the anti-incentive travel AIG Effect at the beginning of the financial crisis -- at least if Sen. Elizabeth Warren (D-MA) has anything to say about it.
Shortly after the issue was first raised last fall, Sen. Warren released a report titled, "Villas, Castles, and Vacations: How Perks and Giveaways Create Conflicts of Interest in the Annuity Industry."
Warren's report said, "Despite existing state and federal regulations and a decade of industry self-regulation, companies have been able to take advantage of legal loopholes and lax disclosure requirements to provide perks, rewards, and other forms of non-cash kickbacks to agents who sell annuities. Giveaways such as expensive vacations, sports tickets, golf outings, and electronics present a conflict of interest for many agents and can incentivize them to sell products that are not in the consumers' best interest."
She estimates the cost to consumers at $17 billion each year.
Both the FICP and SITE "agree with and support the DOL's efforts to protect consumer access to retirement investment advice and ensure that financial advisors will continue to act in their client's best interest," the release said.
However, both Bova and SITE Chief Excellence Officer Kevin Hinton agree that the main impact of the Department of Labor rule -- which was already proposed and commented on buy the public -- may be that companies will either stop selling these annuities altogether or at least stop including them in the sales numbers potential participants need to reach to qualify for incentive trips. "One of the concerns is there could be fewer participants because fewer people can qualify," Hinton said. "We are working closely with Meetings Mean Business, which has been in touch with the Department of Labor on the crafting of these rules."
Right now, the goal of SITE and the FICP is to make sure that their members are aware of the issue, Bova and Hinton said. "We'll have to see [what the final rule says] but we don't want to be reactive, we want to be proactive about it," Bova noted. "If people start questioning, 'these fancy incentive trips' and all those things that happened in 2008 after the [AIG bailout uproar], we want to continue to demonstrate the value and effectiveness of meetings and incentive travel, and that however one might qualify for an incentive program doesn't change the fact that they are an effective way to reward people and to conduct business."
That is why this ruling will be a focus of both the FICP and SITE on Global Meetings Industry Day, which falls on April 14. On that day, planners will join with hoteliers, destination management companies, convention and visitors bureaus, and other suppliers around the world involved with the meeting, incentive, conference, and event industry to discuss the positive economic impact on people, business and communities.