Fred Reish Discusses Prohibited Transaction Violations With Financial Advisor Magazine

In “Insurance Agents Are Unknowingly Breaking DOL Rules, Attorney Says,” Financial Advisor Magazine spoke with benefits and executive compensation partner Fred Reish about insurance agents that may be in violation of U.S. Department of Labor (DOL) rules by accepting “conflicted compensation” from annuities sales for rollovers from retirement assets.

Reish explained that insurance companies could choose between two DOL rules to follow, and both rules require agents to be fiduciaries if they want to qualify for exceptions for annuities and insurance transactions. He added that while broker-dealers and registered investment advisors are required to use prohibited transaction exemption (PTE) 2020-02, there is an option of using rule PTE 84-24.

“I am concerned that there may be widespread noncompliance in the recommendations of rollovers to annuities by insurance agents and brokers,” said Reish. “That is not due to any purposeful intent. Instead, my observation is that many insurance agents, and particularly independent insurance agents, are not aware of the DOL’s expanded fiduciary interpretation and do not know about the existence of PTE 84-24 and the need to satisfy its conditions.”

Reish noted the significance of failing to comply with fiduciary standards and PTE conditions, and he suggested that “someone, perhaps the insurance industry trade associations, should take leadership in educating agents about the fiduciary and prohibited transaction issues.”