One of the key challenges for the financial/insurance industry -- and, consequently, for those who plan meetings and incentives for such firms -- is keeping abreast of government regulations. High on that list is the U.S. Department of Labor's new fiduciary rule, also known as the conflict of interest rule, which was set in motion last month by the Trump administration and can directly affect how incentives should be administered.
Following is an update on government actions, how financial and insurance firms are rethinking their programs, and expert advice for planners going forward.
Fiduciary rule update
In April 2016, the DOL unveiled the fiduciary rule. The measure, which was championed by President Obama, stipulated that financial advisers, consultants, brokers and agents who sell or offer advice on retirement products -- such as an IRA or a 401(k) -- must be able to prove that they acted in their clients' best interest.
The rule also applies to anyone who receives a fee or other compensation, such as trips or gifts, directly or indirectly, for providing investment advice for retirement accounts, including employer-sponsored retirement programs, IRAs and many Health Savings Accounts.
While it's still unclear how, or even if, the DOL or other body will enforce the rule, the federal agency says the main reason for companies to comply is that it gives individuals the right to sue their adviser if they feel he or she didn't act in their best interest.
Initially, the rule was set to be effective as of January 2018, with a transition period beginning in April of this year. However, all was put on hold when President Trump, just weeks into office, issued a memorandum to delay implementation, and called on the DOL to carry out further economic and legal analyses of the measure's potential impact.
Trump's move led financial industry experts to expect the rule to be weakened or even repealed -- particularly in light of the administration's inclination to lessen federal oversight and regulation of business. At the time, Melissa Van Dyke, president of the Incentive Research Foundation, speculated that "a reduction of regulations might be a welcome measure" for incentive programs.
Yet, many in the industry were caught off-guard in May, when Secretary of Labor Alex Acosta announced a June 9, 2017, start date for enforcement of the rule, including a transition period extending through Jan. 1, 2018.
It's unclear whether more changes will come between now and the January 2018 start date, but for the time being industry sources are proceeding as if the rule and date will hold, and adjusting their incentive programs accordingly.
Before you sign
While the DOL has given its initial stamp of approval, there remains some speculation over whether the Trump administration will keep the fiduciary rule in place going forward.
For planners currently negotiating contracts for financial/insurance programs, Jonathan T. Howe, Esq., senior partner of law firm Hutton & Howe, Ltd., recommends they go forth with the assumption the rule will hold. "Deal with law as it is when the contract is drawn," he says.
Looking ahead, Howe advises including language covering such governmental regulation in a force majeure clause, which will protect contracts in the event other government rules affecting financial and insurance incentive programs are enacted. Poor business conditions alone, the type of which might be caused by the fiduciary rule, would not be subject to a force majeure clause.
Reward programs in flux
From the time the DOL first announced the fiduciary rule, many in the financial and insurance industry began to rethink their incentive programs. In an Incentive Research Foundation survey conducted in late 2016, 58 percent of respondents said the measure and other government restrictions were making it more difficult to design reward and recognition programs. In fact, several companies polled had terminated their incentive programs altogether in anticipation of the DOL rule and other regulatory challenges. However, the majority of firms opted to retool programs to spur sales to comply with the new rules.
Tom Wilson, Maritz Travel"We work with larger financial/insurance clients and have seen no cancellation of programs for 2018," says Tom Wilson, division vice president, financial services sector leader, at Maritz Travel. Wilson does, however, point to companies that have reframed their incentive programs -- for which the agents, advisers and brokers who are now reclassified as fiduciaries must still qualify -- as recognition programs, while others are adding "more education, more training and more 'business-legitimate content'" than a typical incentive program.
The addition of an education element is not just for window dressing. "Participants also need education on what the fiduciary rule is and what they can and cannot do," Wilson notes.
These education/recognition meetings also allow top management at financial and insurance firms to network with top qualifiers -- who often are independent brokers and financial advisers -- and find out what they are hearing in the field and from their customers.
One Maritz client has nixed the exotic destinations the company traditionally chose and now holds an education/recognition conference in places where top performers can better network and meet with experts and business-school luminaries in the financial field.
Other companies not only have changed the way they reward their top performers, but have completely revised the qualification metrics. For example, they don't base qualification on sales, but on client satisfaction.
Along those lines, Larry Niland, a senior regulatory adviser to LIMRA, a research, learning and development organization for financial services firms, recommends shifting to incentives that align with customers' interests -- for example, rewarding financial advisers whose clients' accounts grew the most during a period, rather than simply the most proficient sellers of financial products.
While adherence to the new rule is being guided by companies' legal, compliance and sales departments, experts advise planners to take an active role in the process. "We would do well to encourage planners to be at the table while these discussions take place," says Steve Bova, executive director of Financial & Insurance Conference Planners. "They should be part of all important business discussions of the company."