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Submitted electronically: e-ORI@dol.gov; e-OED@dol.gov

July 21, 2015

Office of Regulations and Interpretations

Employee Benefits Security Administration

Attn: Conflict of Interest Rule – Retirement Investment Advice

Room N-5655

U.S. Department of Labor

200 Constitution Avenue NW

Washington, DC 20210

RE: RIN 1210-AB32 – Definition of the Term “Fiduciary”; Conflict of Interest 

Rule – Retirement Advice; Proposed Rule

ZRIN 1210-ZA25 – Proposed Best Interest Contract Exemption; Proposed 

Amendment to and Proposed Partial Revocation of Prohibited Transaction 

Exemption 84-24 for Certain Transactions Involving Insurance Agents and 

Brokers, Pension Consultants, Insurance Companies and Investment 

Company Principal Underwriters

Dear Sir or Madam,

On behalf of NAFA, the National Association for Fixed Annuities, I write today 

with respect to the Department of Labor’s proposed Conflicts of Interest rule, 

defining who is a “fiduciary” in regard to providing retirement investment advice, 

as well as the proposed new Best Interest Contract Exemption and the amended 

Prohibited Transaction Exemption 84-24 (collectively, the “Proposed Rule”). 

Founded in 1998, NAFA is an advocacy trade association, exclusively dedicated to 

educate and inform state and federal regulators, legislators, industry personnel, 

media, and consumers about the value of fixed annuities and their benefits to 

Americans in financial and retirement planning. NAFA’s membership includes 

insurance companies, independent marketing organizations, and individual 

producers, representing every aspect of the fixed annuity marketplace and covering 

85% of fixed annuities sold by independent agents, advisors, and brokers. 

NAFA is pleased to have the opportunity to comment on the Proposed Rule and 

generally supports the Department’s efforts to provide enhanced protections for 

consumers in the retirement marketplace. 
2

However, as currently drafted, the Proposed Rule requires significant refinements 

to ensure that Americans continue to have access to fixed annuities and to the 

financial professionals who provide the education and services necessary to service 

their clients. This is especially true for consumers who have investable assets of less 

than $250,000. At a time when a huge retirement savings gap exists, compounded 

by the fact that Americans are living longer, regulatory efforts must not hinder the 

principal-protected savings and lifetime income options uniquely provided by fixed 

annuities. 

The Department appropriately recognizes that non-security annuities – in other 

words, fixed annuities – are insurance products and asks in its preamble to the

Proposed Rule whether the line between insurance and annuity products that are 

securities and those that are not has been correctly drawn.1 

NAFA appreciates the opportunity to answer the Department’s invitation to 

comment on the disclosure requirements and other applicable standards governing 

fixed annuities, the distribution methods and channels applicable to fixed annuities, 

the common structure of insurance agencies, and the applicability of the Best 

Interest standard to fixed annuities. However, NAFA contends that fixed annuities 

are different from securities investments, and we believe the Proposed Rule must 

not be written so broadly that it has an adverse effect on insured retirement savings

and on the insurance professionals who provide consumers with education and 

retirement advice on fixed annuity products.

The first section of this Comment letter provides an overview of the insurance 

product and fixed annuities marketplace and discusses why it is entirely appropriate 

and correct to treat those transactions differently under any proposed expansion of 

the fiduciary standard.

The second section addresses some of NAFA’s general concerns with the Proposed 

Rule as currently drafted, particularly what we believe will be the unintended 

consequence of limiting consumer choice and access to retirement advice and 

products.

The third section provides comments on the base Conflicts of Interest Rule, 

specifically addressing our concerns regarding the definition of the term “fiduciary,” 

as well as the investment education carve-out and seller’s exception.

 

1 Proposed Best Interest Contract Exemption, 80 Fed. Reg. 21975
3

The fourth section of this letter addresses the amendments to PTE 84-24 and 

discusses aspects of this exemption that we believe require additional clarification 

and/or modification.

I. Overview of the Fixed Annuity Insurance Marketplace

A. Fixed Annuities are insurance products, not 

investments, and should be treated differently under 

any amended fiduciary standard

First and foremost, fixed annuities are insurance products, not investments. This has 

been clear under both state and federal law for decades and was clarified under the 

Dodd-Frank Act.2 As an insurance product, fixed annuities are regulated by an 

effective, robust, and time-tested state-based regulatory and compliance framework. 

State laws govern the organization and licensing of insurance companies, and state 

insurance departments oversee insurance company operations and agents’ sales 

activities. Fixed annuity contracts and amendments must be filed with, and approved 

by, each state in which contracts are sold. 

Moreover, as an insurance product, fixed annuities are insurance contracts and offer 

the insurance guarantees of (1) predictable income the owner cannot outlive, (2) 

protection from investment and market risk, and (3) minimum interest earnings in 

every economic climate. 

Further, unlike securities investments, the sales transaction – the fixed annuity 

contract – is made between the consumer and the insurance company, and all 

payments made for the purchase of the fixed annuity contract are paid to the 

insurance company, not the agent or advisor. These payments are not offset by 

payment of commissions, but are credited into the consumer’s account. The agent 

does not retain any type of control over the funds.

Key distinctions about fixed annuities include:

 All fixed annuities satisfying state standard non-forfeiture laws (“SNFL”) 

requirements are considered insurance products and are not considered to be 

securities.

3

 

2 The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, H.R. 4173.

3 Generally speaking, the Standard Nonforfeiture Law requires that an individual deferred annuity 

contract provide the contract holder with a paid-up annuity or cash surrender benefits of a minimum 

amount, if the contract holder surrenders the policy prior to its maturity date. The nonforfeiture 
4

 Fixed annuities satisfying standard state non-forfeiture laws must follow 

state-mandated reserving, guaranteed annuitization payout requirements and 

disclosure laws. 

 In all fixed annuity contracts, the insurance company provides contractual 

guarantees that a minimum SNFL value will accrue, as well as guarantees 

protecting the contract owner from market downturns. The insurance 

company retains the market risk.

 A fixed annuity contract owner does not have a separate account, and interest 

is paid from the insurance company’s general funds.

Insurance products like fixed annuities have no downside market risk and provide 

state-mandated guarantees to the consumer that investment products cannot provide 

due to their inherent risk factors. Hence, state regulation already provides a high 

level of consumer protection and, as will be discussed below, impose standards on 

insurance agents that the fixed annuity is suitable for the consumer. Thus, NAFA 

agrees the Department has appropriately categorized fixed annuities as covered 

transaction eligible for an exemption under PTE 84-24.

B. Insurance Agents who sell fixed annuities are subject to 

rigorous and comprehensive licensing requirements.

The bar to become a licensed insurance agent is significant. Insurance agents are 

bound to act in accordance with the common law requirements of agency and must 

pass tests of both competency and character before they are granted a state license.4

Insurance agents need to be licensed in each state in which they operate. Only statelicensed life insurance agents may sell fixed annuity contracts. 

After an agent has secured a license from the state, he or she must find an insurance 

company that will appoint or contract with them, and permit them to act as their 

selling agent. Insurance carriers review each and every application for appointment, 

and it’s not unusual for an agent to be denied the opportunity to contract with that 

 

amount is a state-mandated portion of the deferred annuity’s paid premium, minus any previous 

withdrawals and certain charges, accumulated at interest rate minimums regulated by statute.

4 To use the State of Missouri as an example, an individual may be refused a license – or may have his or 

her license revoked, suspended or not renewed – if the individual has been convicted of a crime involving 

moral turpitude or if the individual has used fraudulent, coercive, or dishonest practices or demonstrated 

untrustworthiness or financial irresponsibility in the conduct of business in the state or elsewhere—note 

that the latter may be a disqualifier even without a criminal conviction. Missouri Rev. Stat., Chapter 375, 

Provisions Applicable to All Insurance Companies, §375,141(6), (10) (2014), 

http://www.moga.mo.gov/mostatutes/chapters/chapText375.html.
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carrier. This review process occurs each time the agent applies for appointment with

a new or additional insurance company. 

Once licensed and appointed, and before an insurance agent may sell a fixed 

annuity, he or she must complete, in addition to the regular and ongoing insurance

continuing education requirements, insurer-provided product-specific education to 

ensure the agent’s compliance with the insurer’s standards for product training, as 

well as a one-time, 4-credit annuity suitability training course. The suitability 

training course includes information regarding the types and various classifications

of annuities; the uses of annuities; appropriate sales practices, replacement, and 

disclosure requirements; how product-specific annuity contract provisions affect 

consumers; the identification of parties to an annuity; and the application of income 

taxation of qualified and non-qualified annuities.

C. Insurance agents do not have continued management of

or control over the consumer’s assets.

With investment advice, the consumer pays the investment advisor to manage his 

or her money. The consumer gives the money to the investment advisor who then 

places it in different investment instruments, moving the money around, reallocating 

it, buying and selling different assets such as stocks and bonds, all in accordance 

with an investment plan that the advisor has developed. For this service – to provide 

advice and make decisions about the assets under management – there are ongoing, 

usually annual, fees that an investor pays to the advisor.

With a fixed annuity, however, the money is not controlled or managed by the 

insurance agent; the money is paid to the insurance company. A fixed annuity sale 

is a one-time transaction between the client and the agent. The agent does not have 

access to the assets used to purchase the fixed annuity and cannot alter anything in 

the annuity contract. 

If the consumer in a fixed annuity transaction is dissatisfied for any reason, he or 

she may first return the fixed annuity contract for a full refund during the free-look 

period, which typically ranges between 10 and 30 days. Outside of the free-look 

period, a fixed annuity consumer can submit complaints to the insurance company 

or to the state insurance department. If the insurance company or state insurance 

department finds in favor of the consumer, corrective action is taken by the 

insurance company to make the consumer whole. 
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D. Fixed annuity distribution methods and channels are 

unique to the insurance industry.

Fixed annuities are distributed and marketed in a wide variety of different 

distribution models, with each and every sale complying with a robust and effective 

state regulatory compliance framework. There are many different types of 

salespersons who distribute fixed annuities. Some of these insurance agents operate 

as “career agents” of carriers, “captive agents” of a carrier, “independent agents” 

for one or several carriers, employees of carriers or distribution firms, and the like. 

Some of these agents work directly with carriers, while others may be required by 

contract or practice to sell only certain types of fixed annuities. 

Fixed annuities may be distributed through bank, wire house, broker-dealer, captive, 

independent, or other sales channels. In some cases, the consumer may contract 

directly with the insurance carrier without working with an insurance agent. In 

some instances, the insurance agent selling a fixed annuity may have a securities 

license and be subject to certain rules and requirements of their broker-dealer for 

which they are affiliated. Some of these broker-dealers may supervise the sale of 

certain types of fixed annuities, while others treat insurance sales as outside business 

activity. Registered Investment Advisor (“RIA”) firms and Investment Advisory 

Representatives (“IARs”) of RIAs may too also have varying oversight rules of 

fixed annuity sales. 

While there is a wide array of distribution methods, what is clear is that every 

salesperson selling fixed annuities must comply with all applicable state insurance 

regulatory requirements. 

All states have comprehensive rules and regulations that govern the sales practices, 

disclosure, training, conduct, and consumer protection standards that ensure fixed 

annuities are marketed, sold, and distributed to consumers with fairness, 

transparency, and recourse in mind. This robust state-based insurance regulatory 

system has been developed over the past hundred years and has proven to work very 

effectively. Moreover, state laws and regulations, as well as the insurance agent 

contracts that carriers require insurance agents to execute, make clear that these 

salespersons are agents of the carriers. 

E. Current disclosure requirements for fixed annuities are 

comprehensive, provide meaningful information to 

consumers, and are sufficient to protect consumers’ 

financial interests.
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In the preamble to the Proposed Rule,5the Departments invites specific comment 

on the current disclosure requirements applicable to insurance and annuity contracts 

that are not securities and asks whether the proposed transaction disclosure 

requirements can be revised for non-security annuities in such a way to provide 

meaningful information to consumers. As the following discussion demonstrates, 

fixed annuities are already subject to comprehensive disclosure requirements and 

do not warrant additional federal disclosures other than the ones specifically 

recommended herein.

State insurance departments regulate the sales practices for fixed annuities and 

include robust regulations related to required disclosure information. States require 

that a written disclosure statement be provided to the purchaser of a fixed annuity 

contract at the point of sale to both protect consumers and foster consumer 

education. The majority of states have adopted the National Association of 

Insurance Commissioners (NAIC) Annuity Disclosure Model Regulation. In 

addition, the NAIC updated its Annuity Buyer’s Guide in 2013, which is included 

as part of the Model Regulation’s disclosure requirements.6

At a minimum, the Model Regulation requires that the following information is 

included in the disclosure document:

(1) The generic name of the contract, the company product name, if 

different, and form number, and the fact that it is an annuity;

(2) The insurer’s legal name, physical address, website address, and 

telephone number;

(3) A description of the contract and its benefits, emphasizing its longterm nature, including examples where appropriate: 

(a) The guaranteed and non-guaranteed elements of the contract, 

and their limitations, if any, including for fixed indexed annuities, 

the elements used to determine the index-based interest, such as the 

participation rates, caps or spread, and an explanation of how they 

operate; 

(b) An explanation of the initial crediting rate, or for fixed 

 

5 80 FR 21975. 

6 The states that have not yet adopted the revised model disclosure regulation do, however, have state 

insurance regulations concerning annuity disclosure requirements; moreover, insurance companies that 

operate on a nationwide basis have adopted internal policies and protocols that meet or exceed the state or 

model requirements and apply them in all states.
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indexed annuities, an explanation of how the index-based interest is 

determined, specifying any bonus or introductory portion, the 

duration of the rate and the fact that rates may change from time to 

time and are not guaranteed; 

(c) Periodic income options both on a guaranteed and nonguaranteed basis; 

(d) Any value reductions caused by withdrawals from or 

surrender of the contract; 

(e) How values in the contract can be accessed; 

(f) The death benefit, if available and how it will be calculated; 

(g) A summary of the federal tax status of the contract and any 

penalties applicable on withdrawal of values from the contract; and 

(h) Impact of any rider, such as a long-term care rider. 

(4) Specific dollar amount or percentage charges and fees shall be listed 

with an explanation of how they apply; and

(5) Information about the current guaranteed rate or indexed crediting 

rate formula, if applicable, for new contracts that contain a clear 

notice that the rate is subject to change.

In addition to requiring a product-specific disclosure statement, as previously noted, 

the disclosure requirements include the delivery of a free Annuity Buyer’s Guide

that must be provided no later than five days after receipt of the annuity contract 

application. The NAIC created the Annuity Buyer’s Guide in collaboration with the 

insurance industry and consumer groups. 

F. Beyond disclosure requirements, additional state-based

laws and rules impose a comprehensive and effective 

regulatory system over fixed annuities.

In addition to the Annuity Disclosure Model Regulation, state insurance 

departments have adopted comprehensive regulations related to the sale of fixed

annuities. Insurance companies have, in turn, implemented policies to carry out 

these rules and objectives. They include the following:

1. Suitability in Annuity Transactions Model Regulation

Originally adopted in 2003 as the Senior Protection in Annuity Transactions Model 

Regulation, the Suitability Model Regulation now applies to all fixed annuity 

transactions, regardless of the age of the purchaser. It establishes a system for state 

regulators and insurance carriers to supervise recommendations to purchase 
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annuities and sets forth standards and procedures for fixed annuity transactions so 

that the insurance needs and financial objectives of consumers at the time of the 

transaction are appropriately addressed. 

The Suitability Model Regulation was most recently updated in 2010, imposing 

more extensive suitability standards on the sale of fixed annuities, clarifying that the 

insurance company is responsible for ensuring compliance with the suitability 

standards, including the review of all recommendations prior to the issuance of a 

contract, and requiring insurance agents to undergo mandatory product-specific 

training as well as general suitability training before making any fixed annuity 

recommendation. 

In fact, these enhanced suitability requirements were codified in the Dodd-Frank 

Act of 2010,7requiring the adoption of suitability standards that are modeled after 

the most-recent NAIC Suitability Model Regulation by the state in which the 

insurance annuities are sold or by the insurer issuing the contract. 

Currently 35 states, plus the District of Columbia, have adopted the 2010 version of 

the Suitability Model, with three additional states in the process of its adoption. 

Moreover, insurance companies that operate on a nationwide basis have adopted 

practices and protocolsthat meet or exceed the standards set forth in the 2010 model. 

2. Insurance and Annuity Replacement Model Regulation

The purpose of this NAIC model law is to regulate the activities of insurers and 

producers with respect to the replacement of existing life insurance and annuities, 

by establishing minimum standards of conduct to be observed in replacement or 

financed purchase transactions. The regulation ensures that those who decide to 

purchase a replacement annuity receive the information necessary to make an 

informed purchase decision. 

3. Advertisements of Life Insurance and Annuities Model Regulation

This regulation establishes minimum standards and guidelines to assure a full and 

truthful disclosure to the public of all material and relevant information in the 

advertising of life insurance and annuity products. 

4. State “Free Look” (or Right to Return) Requirements

Most states require that insurance annuity contracts include a “free look” or “right 

to return” provision, allowing annuity contract purchasers the right to cancel their 

 

7 The Harkin Amendment was added to the Dodd-Frank Act, H.R. 4173, as section 989G, and is codified as 

a note to 15 U.S.C. §77c(a)(8).
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contract within a certain number of days of the contract’s delivery – typically 

between 10 – 30 days. In fact, the Annuity Buyer’s Guide calls particular attention 

to this feature, as follows:

When You Receive Your Annuity Contract

When you receive your annuity contract, carefully review it. Be sure it 

matches your understanding. Also, read the disclosure or prospectus and 

other materials from the insurance company. Ask your annuity salesperson 

to explain anything you don’t understand. In many states, a law gives you 

a set number of days (usually 10 to 30 days) to change your mind about 

buying an annuity after you receive it. This often is called a free look or 

right to return period. Your contract and disclosure and prospectus should 

prominently state your free look period. If you decide during that time that 

you don’t want the annuity, you can contact the insurance company and 

return the contract. Depending on the state, you’ll get back all of your 

money or your current account value.

5. Use of Senior Specific Certifications and Professional Designations in the 

Sale of Life Insurance and Annuities Model Regulation

While this model regulation is targeted squarely at protecting senior consumers, it 

sets forth standards to protect all consumers from misleading and fraudulent 

marketing practices with respect to the use of senior-specific certifications and 

professional designations in the solicitation, sale or purchase of, or advice made in 

connection with, a life insurance or fixed annuity product.

6. State Insurance Unfair Trade Practice Laws

The NAIC’s Unfair Trade Practices Act provides the framework to regulate trade 

practices in the business of insurance by defining and prohibiting a broad range of 

conduct and practices that constitute unfair methods of competition or unfair or 

deceptive activities or practices. This Model Act was most recently revised in 2008, 

and most states have adopted this Act or similar regulations. Adoption of the Act 

grants broad powers to State Insurance Commissioners to examine and investigate 

the affairs of every person or insurer in the state to determine if the person or insurer 

is engaged in any unfair trade practices. 

7. Market Conduct Exams

All state departments of insurance have the regulatory authority to investigate 

carriers and insurance agents to ensure compliance with applicable laws and 

regulations. State departments of insurance will each examine its domestic carriers 

on a regular basis. More than 40 state departments of insurance, working in 

conjunction with the NAIC, will annually collect compliance related data from all 
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carriers via the Market Conduct Annual Statement. This data is utilized to identify 

“outliers” and address potential issues through a market conduct exam or targeted 

exam regarding specific issues.

We include here links to the following documents discussed in this Section:

 NAIC Annuity Disclosure Model Regulation (MDL-245)

 NAIC Suitability in Annuity Transactions Model Regulation (MDL-278)

 NAIC Standard Nonforfeiture Law for Individual Deferred Annuities (MDL-805)

 NAIC Life Insurance and Annuities Replacement Model Regulation (MDL-613)

 NAIC Advertisements of Life Insurance and Annuities Model Regulation (MDL570)

 NAIC Annuity Buyer’s Guide – Fixed Deferred

 NAIC Use of Senior Specific Certifications and Professional Designations in the 

Sale of Life Insurance and Annuities Model Regulation (MDL-278)

 NAIC Unfair Trade Practices Act (MDL-880)

G. The protections provided by the state regulatory 

structure has resulted in a very low number of

consumer complaints for fixed annuities.

The state-based regulatory structure governing the manufacture, distribution, and 

sale of fixed annuity products is effective as demonstrated by the minimal number 

of consumer complaints. In fact, in 2014 consumer complaints involving securities 

and advisors represented over 97% of combined annuity and securities complaints 

– but only .03% of total complaints were lodged by owners of fixed annuities.8 This 

low number of complaints involving fixed annuities demonstrates the effectiveness 

of the state-based regulatory structure.

 

8 Data Sources: FINRA: http://www.finra.org/newsroom/statistics; NAIC: 

https://eapps.naic.org/documents/cis_aggregate_complaints_by_coverage_types.pdf; SEC: 

http://www.sec.gov/news/data.htm; NASAA: http://www.nasaa.org/regulatory-activity/enforcement-legalactivity/enforcement-statistics/ (*NASAA only has compiled complaints for 2013)
12

As the preceding discussion demonstrates, the current state-based regulatory 

oversight of fixed annuity transactions is most effective in protecting consumers’ 

financial interests when they purchase these contracts. State Insurance Departments 

oversee all aspects of the transaction: from the development and approval of each 

fixed annuity product sold in the state to the operations and compliance protocols 

of the insurance companies to the licensure and sales activities of the individual 

agents. In each instance, the objective is to protect the financial interests of the fixed 

annuity purchaser. In all practicalities, this comprehensive regulatory scheme 

serves the best interest of the consumer.

II. While NAFA appreciates the Department’s efforts to 

provide enhanced protections for retirement investors, 

the Proposed Rule would cause tremendous disruption 

in the distribution and sale of fixed annuities, 

disproportionately impacting lower- and middleincome consumers.

A. A fiduciary-only standard, without workable exceptions, 

will ultimately harm the consumers it was intended to 

protect.

77

431

508

2802

5014

9693

17509

NAIC FIAs

NAIC Other

Annuities

NAIC All Annuities

FINRA

SEC (top 10)

NASAA

Total Securities

2014 Consumer Complaints
13

As NAFA understands the Proposed Rule, the Proposed Rule is premised on the 

assumption that a commission-based payment model creates an inherent, de facto 

conflict of interest that works to the detriment of consumers. Consequently, the 

Proposed Rule disallows commission-based compensation for all qualified accounts 

unless the transaction was permitted under a Prohibited Transaction Exemption

(“PTE”). The Department creates a paradigm whereby only fee-based compensation 

could avoid the conflict of interest.

NAFA disagrees with this assumption. While fee-based advice may be appropriate 

for some consumers, it does not follow that a one-size-fits-all prescriptive payment 

model is appropriate for all consumers or retirement products. 

More than 80% of fee-based advisors define their core market as clients with a 

minimum of $250,000 of investable assets.9 The real world consumer marketplace 

reality is that requiring a fiduciary-only standard discriminates against lower and 

middle income savers because they do not have sufficient assets to be accepted as 

clients by the vast majority of fee-based advisors. The bulk of middle and mass 

market financial assets are in qualified accounts where the median value of an IRA 

account is $34,000, and the median value of a 401(k) plan account is $30,000.10

Even if fee-based advisors were encouraged to drop their minimum asset 

requirements and accept consumers with investable assets of $100,000, this would 

still mean that a majority of retirement savers, particularly minority Americans,

would have insufficient assets to meet the minimum requirement and would be 

 

9 Mary Beth Franklin, Financial Planning for the Middle Class, Kiplinger (online) August 2011, 

available at http://www.kiplinger.com/article/retirement/T023-C000-S002-financial-planning-forthe-middle-class.html

10 U.S. Census Survey of Income Program and Participation, 2011, available at 

http://www.census.gov/people/wealth/files/Wealth_Tables_2011.xlsx.

$184,725

$39,423

$64,978

$139,762

$45,274 $41,834

Non-Minority African-American Hispanic

Source: Source: U.S. Census Bureau, Survey of Income and Program Participation, 2011

Mean Account Value

IRA 401(k) % Thrift
14

unable to receive personal, individualized professional financial and retirement 

assistance.

Even if fee-based advisors eliminated a minimum asset requirement, few middle- or 

lower-income consumers could afford the fees the advisor would necessarily charge 

to cover their operating expenses.

A fiduciary-only rule without workable, common sense carve-outs effectively 

creates two classes of retirement consumers: the affluent who have sufficient assets 

to justify the time and fees of the advisor and the much larger mass market who will 

be unable to obtain in-person professional financial and retirement advice. 

Moreover, it would relegate many Americans to robo-advisors or internet-based 

sales, which would deny them in-person education on the importance of saving for 

retirement.

B. The fee-compensation model can create higher costs to 

consumers than under the commission-based 

compensation model.

In a 2014 survey of 55 Washington, D.C. area advisory firms, the median fee-based 

advisor minimum required assets under management was $1,000,000. Although ten 

of the surveyed advisory firms said they did not have a minimum asset requirement, 

the minimum annual fees listed for those firms ranged from $3,000 to $9,000. For a 

consumer with just $60,000 of investable assets, those first year fees would be the 

equivalent of 5% to 15% of his or her assets. 11

By contrast, the typical minimum payment required to purchase a fixed annuity 

ranges from $5,000 to $25,000 – and is often less for a qualified account. 

Importantly, fixed annuity agents can and do provide the same professional service 

for all their consumers, whether the annuity purchase payment is $5,000 or 

$500,000. 

When a fee-only advisor accepts smaller accounts, the annual fee is often at least 

2% of the assets year after year after year. If we use a hypothetical consumer with 

$100,000 of investable assets, it is demonstrable that over time the consumer will 

pay more in fees to the investment advisor than the insurance company would pay 

in commissions to an insurance agent. For this example, we will assume that the 

yield is 3% and that the timeframe is 5 years.

 

11 http://www.washingtonian.com/articles/work-education/top-money-advisors-2014-fee-only-financialplanners/index.php
15

Under the fee-based advisor alternative, the total advisor fees would be $10,190. 

However, that same consumer could purchase a fixed annuity for $100,000 from an 

insurance company. The entire purchase payment would earn interest under the 

contract, and no funds would be deducted to pay the agent’s commission. The 

insurance company would make a one-time payment to the insurance agent of 

$2,400.12 Thus, the consumer has paid nothing directly to the agent, and yet his or 

her annuity contract’s value will grow based on the full premium payment. In the 

fee-based model, the consumer’s investment is reduced over time by $10,190.

Often the justification for a fee-based, fiduciary-only standard is that it is less 

expensive for the consumer than is a commission-based compensation model. 

Although that may be true for consumers with substantial financial assets, it is not 

necessarily true for the majority of consumers. Over time, the upfront commission 

paid by the insurance company to the agent is less than the ongoing, annual, 

cumulative fees paid to the investment advisor, who is managing the investment 

account.

III. The Proposed Rule’s significant expansion of what 

constitutes investment advice, thereby triggering 

fiduciary status, is overly broad.

While NAFA supports the Department’s efforts to study and propose reasonable 

rules that can provide new consumer protection standards to better protect the 

financial interests of consumers, the changes to the definition of “fiduciary” as set 

forth in the Proposed Rule needs modification in order to preserve consumer access 

to financial professionals, to maintain broad choice in retirement savings products, 

and to ensure compliance certainty for product providers and financial 

professionals.

A. The definition of “fiduciary” should require a mutual 

understanding that the advice is individualized to the 

consumer and will serve as a primary basis for the 

investment decision. 

The current definition of “investment advice” (and thus the trigger for fiduciary 

obligations) under ERISA section 3(21)(A)(ii)13 requires that the investment advice 

 

12 Per annuityratewatch.com, 6/26/2014, examining 37 multiple-year guarantee annuity policies with a 5-

year rate guarantee.

13 See 29 CFR §2510.3-21.
16

rendered to the plan is provided on a regular basis pursuant to a mutual agreement, 

arrangement, or understanding, written or otherwise, between the person rendering 

the advice and the plan and that such advice serves as the primary basis for 

investment decisions with respect to plan assets. (Emphasis added.)

The Proposed Rule, in addition to expanding the definition to include investment 

advice to IRAs and IRA owners, eliminates the requirements that the advice is 

rendered on a regular basis and that the advice serves as the primary basis for the 

investment decisions with respect to the plan. It would also no longer require a 

mutual understanding between the parties, but would rather capture advice that is 

“individualized to” or “directed to” the advice recipient “for consideration” in 

making investments decisions with respect to the plan or IRA. 

NAFA does not disagree with the notion that a one-time rendering of investment 

advice might create a fiduciary relationship, so we do not object to the removal of 

the “regular basis” element from the current definition. However, we believe it 

would serve the best interests of the advice recipient if the person rendering the 

investment advice were able to define, through disclosure, the scope of the fiduciary 

duty as to its duration – whether ongoing, one-time, or limited in time relative to the 

particular plan or IRA investment transaction. 

Our greater concerns with the proposed changes to the definition are the removal of 

the requirement that the agreement, arrangement or understanding be mutual and 

the elimination of the primary basis element such that the advice recipient need only 

consider the rendered advice in making plan or IRA investment decisions. 

Additionally, we are concerned that the inclusion of the term “directed to” will 

capture under the fiduciary standard communications that are more generalized in 

nature, such as marketing and advertising materials. 

Additionally, the Proposed Rule needs clarification that it is the individual person 

who renders the investment advice who becomes the fiduciary to the plan or IRA, 

not the company whose products they recommend. 

Consistent with the American Council for Life Insurers’ position, NAFA believes 

that fiduciary obligations arise where the relationship between the financial 

professional and the consumer creates an expectation of trust. The investment 

advice industry has long functioned under the premise that “investment advice” that 

creates a trusted relationship between the financial professional and an investor must 

be customized and deemed suitable for and based on the needs of the specific 

investor. 
17

The Department’s decision to capture communications that are merely “directed to”

the advice recipient upends traditional passive marketing activity that is often the 

primary way by which investors become aware of their product and service options. 

In effect, the inclusion of communications that are merely “directed to” a potential 

consumer creates a presumption that the communication is investment advice , thus 

triggering a fiduciary relationship, a relationship which neither party intended, 

expected or agreed to. Further, the lack of clarity within the rule will have a chilling 

effect on all types of marketing activity, because the line between traditional 

marketing and fiduciary investment advice cannot be determined in advance with 

any degree of certainty.

Accordingly, NAFA suggests that the base definition of “fiduciary” under the

Proposed Rule be revised as follows:

§ 2510.3-21 Definition of “Fiduciary.” 

(a) Investment advice. For purposes of section 3(21)(A)(ii) of the 

Employee Retirement Income Security Act of 1974 (Act) and section 

4975(e)(3)(B) of the Internal Revenue Code (Code), except as provided 

in paragraph (b) of this section, an individual person renders investment 

advice with respect to moneys or other property of a plan or IRA 

described in paragraph (f)(2) of this section if—

(1) Such person provides, directly to a plan, plan fiduciary, plan 

participant or beneficiary, IRA, or IRA owner the following types of 

investment advice, whether one time or ongoing, in exchange for a fee or 

other compensation, whether direct or indirect: 

(i) A recommendation as to the advisability of acquiring, holding, 

disposing or exchanging investments securities or other property, 

including a recommendation to take a distribution of benefits (other than 

a distribution required by the plan or the Code) or a recommendation as 

to the investments of securities or other property to be rolled over or 

otherwise distributed from the plan or IRA; 

(ii) A recommendation as to the discretionary management of 

investments by a party other than the party making the recommendation 

securities or other property, including recommendations as to the 

management of investments securities or other property to be rolled over 

or otherwise distributed from the plan or IRA; 

(iii) An appraisal, fairness opinion, or similar statement whether 

verbal or written concerning the value of investments securities or other 

property if provided in connection with a specific transaction or 
18

transactions involving the acquisition, disposition, or exchange, of such 

investments securities or other property by the plan or IRA;

(iv) A recommendation of a person who is also going to receive a fee 

or other compensation for providing any of the types of advice described 

in paragraphs (i) through (iii); and 

(2) Such person, either directly or indirectly (e.g., through or together 

with any affiliate),—

(i) Represents or acknowledges that it is acting as a fiduciary within 

the meaning of the Act with respect to the investment advice described in 

paragraph (a)(1) of this section; or 

(ii) Renders the investment advice pursuant to a written or 

verbal agreement, arrangement, or understanding that the advice is 

individualized or that such advice is specifically directed to, the advice 

recipient for consideration in making investment or management 

decisions with respect to securities or other property of the plan or IRA.

to meet the specific investment goals of the investor, and is provided at 

the request of the investor pursuant to the agreement, arrangement, or 

understanding.

B. Agents must be able to sell fixed annuity products under 

the “seller’s carve-out” without triggering fiduciary 

status. 

As noted in Section I above, fixed annuity contracts are very different than securities 

products. With fixed annuities, consumers are not purchasing an investment that 

can be bought and sold in a bid market; they are entering into a legal contract with 

an insurance company. 

Insurance agents cannot make any alterations to the terms, benefits, or commitments 

of the fixed annuity contract; in fact, they are prohibited from making any changes. 

They may not negotiate benefits on behalf of the annuity client, nor can they sell the 

contract to another party. Rather, insurance agents consider the annuity products 

that are available to sell from the insurance company or companies and make 

recommendations to their clients and prospective clients about the fixed annuity 

product contract options that would best serve the client’s financial objectives. 

As such, the sale of an insurance product by an insurance agent is not fiduciary in 

nature and should not trigger fiduciary obligations. The Department has recognized 

this distinction when it distinguishes “incidental advice as part of an arm’s length 

transaction with no expectation of trust or acting in the customer’s best interest, 
19

from those instances of advice where customers may be expecting unbiased 

investment advice that is in their best interest.”14 

In a fixed annuity sales transaction, the contract purchaser understands that he or 

she is purchasing a proprietary insurance product and that the insurance agent 

represents the insurance company that designed the product. Moreover, the 

purchaser understands that the agent is not providing (and in fact cannot provide) 

impartial investment advice comparing the fixed annuity product against a universe 

of annuity products or investment products unavailable to the agent—but, rather, 

the agent is describing the value and benefits of the proposed fixed annuity product

as part of the sales transaction.

NAFA believes that fixed annuity purchasers fully understand this agency 

relationship, but would nonetheless support reasonable disclosures or agreements 

that make clear that the insurance agent represents the insurance company and is 

selling only products then available to the agent.

Moreover, insurance agents selling fixed annuities deal directly with individual 

consumers and small plans. The Proposed Rule’s carve-out for sellers is limited to 

transactions with large plans with either greater than 100,000 beneficiaries or with 

assets greater than $100 million. Given that there is no market risk to the consumer 

or plan purchasing an insurance product, the robust state insurance regulatory 

regime governing the transaction and the agent, including disclosures, NAFA 

recommends that the seller’s carve-out under section 2510.3-21(b)(4) be expanded 

to state that the mere “selling” of non-security insurance products to a plan or IRA 

by a person does not constitute fiduciary investment advice as long as the proper 

state-mandated insurance and other appropriate sales disclosures are provided, and 

that the exclusion is not limited by the asset size or number of participants in the 

plan.

C. The narrowly-drawn education carve-out will result in 

consumers not having sufficient information to make 

informed retirement decisions.

NAFA believes it is essential that the Department maintain the important distinction 

between non-fiduciary investment education and fiduciary investment advice.

The Proposed Rule would radically change the way insurance agents communicate 

with their clients who are looking for sound and helpful retirement education. As 

 

14 80 FR 21941.
20

NAFA understands the Proposed Rule, fiduciary obligations would be triggered at 

the first instance an insurance agent provides education material to a prospective 

client on a particular or specific annuity product to consider in a plan or IRA 

investment or distribution option. Additionally, any discussions about distributions 

and rollovers would be considered investment advice and, therefore, fiduciary in 

nature.

A narrow investment education carve-out would render these essential 

communications as little more than abstractions. Insurance agents must introduce 

clients to fixed annuities, help them understand the value proposition they provide 

in retirement planning, and educate them on the variety of annuities and their 

corresponding features. 

The investment education carve-out under section 2510.3-21(b)(6) must make it 

clear that non-fiduciary education includes discussions about annuities generally, as 

well as discussions about particular product features that address concerns regarding 

liquidity, inflation, premature death, etc., including models generated with regard to 

such features. Purely informational discussions about annuities or distributions 

should not create a fiduciary relationship. The intense educational component of a 

fixed annuity sale is unique to this product. 

Moreover, the Proposed Rule should clarify that fixed annuity advertising and 

marketing materials and illustrations that conform to state insurance laws and 

regulations should not be considered investment advice and should fall under the 

Rule’s investment education carve-out.

Industry has been able to operate well under the Department’s guidance on 

educational investment advice provided in Interpretive Bulletin 96-1. We strongly 

recommend that the proposed investment education carve-out be replaced with 

language that incorporates the guidance provided in IB 96-1. 

IV. NAFA agrees that PTE 84-24 is the appropriate 

regulatory exemption for fixed annuities; 

however, the amended exemption requires 

further refinements to assist insurance 

companies and agents with their compliance 

duties and to protect the interests of retirees.

As stated previously, NAFA applauds the Department for recognizing the 

distinction between securities and insurance products. We agree with the 
21

Department that PTE 84-24 is the appropriate exemption to use for non-security 

annuity contracts (i.e., fixed annuities) when the insurance agent is acting as a 

fiduciary.

15 To confirm our understanding of the amendments to the exemption and 

to ensure that consumers of all investable asset size have continued choice and 

access to insurance retirement advisors, NAFA seeks clarification regarding the

applicability and scope of PTE 84-24. 

NAFA urges the Department to continue its long-time support of a regulatory 

exemption to support the efforts of life insurance companies, their partners in the 

fixed annuity distribution channels, and the individual insurance agents to offer

everyday Americans access to products that provide a stream of retirement income 

that they will not outlive. 

In that spirit, NAFA offers the following comments on proposed amended PTE 84-

24:

A. Section I. Covered Transactions – Scope of the Exemptions.

The current proposal should better clarify those annuity contracts that are intended 

to be outside of PTE 84-24. NAFA seeks clarification from the Department that the 

intent is to disallow from this exemption (in addition to mutual fund shares) annuity 

products that are registered under federal securities law. 

B. Section II. Impartial Conduct Standards – Best Interest.

Under Section II(a), the Impartial Conduct Standards are satisfied as it pertains to 

the sale of insurance products only when the insurance agent or insurance company

 

15 NAFA notes that the Department invites public input regarding whether the conditions of the proposed 

Best Interest Contract (BIC) Exemption, other than the disclosure conditions, would be inapplicable to nonsecurity annuities. (80 FR 21975.) Again, NAFA agrees that to the extent that an insurance agent may be 

acting as a fiduciary in relation to a plan or IRA transaction, PTE 84-24 is the appropriate exemption. 

Nevertheless, we would comment that the conditions of the BIC Exemption (BICE) are completely 

inapplicable to the sale of fixed annuities and would impose onerous and, frankly, unworkable conditions on 

the sale of these insurance products. In particular, we want to highlight the following points: the prerecommendation contract requirement under BICE is entirely impractical in an insurance sales transaction. 

Requiring the insurance agent to warrant that he or she has complied with all applicable federal and state 

laws regarding the rendering of investment advice, places the insurance-only agent in an untenable position: 

insurance agents may not, under state or federal law, render investment advice as they are not securities 

registered. Should an insurance-only agent warrant that she or she is in compliance with all applicable 

securities laws, the agent would be in violation of both insurance and securities regulations and would be 

exposed to administrative and legal action. 
22

(a) acts in the “Best Interest” of the plan or IRA with respect to the assets involved 

in the transaction and (b) does not make misleading statements nor fail to disclose 

a “Material Conflict of Interest.”

16

 

‘Best Interest’ is later defined in the amended PTE as acting “with the care, skill, 

prudence, and diligence under the circumstances then prevailing that a prudent 

person would exercise based on the investment objectives, risk tolerance, financial 

circumstances and needs of the plan or IRA, without regard to the financial or other 

interests of the fiduciary, any affiliate, or other party.”17 (Emphasis added.)

‘Material Conflict of Interest’ is later defined as existing “when a person has a

financial interest that could affect the exercise of its best judgment as a fiduciary in 

rendering advice to a plan or IRA.”18 (Emphasis added.)

NAFA is concerned with the breadth and ambiguity of the definitions of both 

“Material Conflict of Interest” and “Best Interest” under the proposed new Impartial 

Conduct Standards, and with their uncertain application to the insurance company 

that the agent may represent. Insurance agents and the companies for which they 

sell insurance products all have a financial interest in making a fixed annuity sale. 

Consumers understand that insurance agents receive compensation and that annuity 

providers must make money to stay in business in order to satisfy the insurance 

guarantees promised to the consumer. Without greater clarity it is conceivable that 

the payment of any commission would create – even with proper disclosure – a 

material conflict of interest under the proposed definition, inviting confusion and 

legal exposure as a violation of the Impartial Conduct Standards. 

Moreover, the rule is unclear whether the Impartial Conduct Standards under 

Section II apply to the insurance company that issued the insurance product or 

annuity purchased with plan assets. Only the agent deals directly with the retirement 

investor and is the person who provides the investment advice that triggered the 

fiduciary duty in the first place. Thus, NAFA recommends clarifying the rule so that 

it is clear the impartial conduct standards apply only on the individual person who 

directly and personally provides investment advice to the Retirement Investor.

 

16 80 FR 22018.

17 80 FR 22020.

18 Ibid.
23

C. Section II. Impartial Conduct Standards – Assets 

Involved in the Transaction.

Unlike securities representatives, fixed annuity agents have a limited and defined 

array of products that they may recommend for purchase to a consumer. As 

discussed previously, insurance agents can only offer fixed annuity products that 

are available to them to sell from the insurance companies with which they have a 

contractual/agency relationship. 

NAFA seeks clarification that when the assets involved in the transaction are fixed 

annuities, the Best Interest standard is met as long as the insurance agent considers 

all of the fixed annuity products that such agent is authorized by one or more 

insurance company to sell at the time the recommendation is made and acts in 

accordance with all applicable laws and regulations, including state insurance 

suitability requirements.

D. Section III. General Conditions – Reasonable Compensation.

Section III(c)(2) states that the combined total of all fees, Insurance Commission, 

and other consideration received by the insurance agent ... or insurance company

may not be in excess of “reasonable compensation.” 19

Section VI(f) further defines ‘Insurance Commission’ as “a sales commission paid 

by the insurance company or an Affiliate to the insurance agent ... for the service 

of effecting the purchase or sale of an insurance or annuity contract, including 

renewal fees and trailer, but not revenue sharing payments, administrative fees or 

marketing payments, or payments from parties other than the insurance company or 

its Affiliates.”20

NAFA believes that the term “reasonable compensation” needs to be clarified

further and suggests that, as it pertains to Insurance Commissions, the determination 

as to whether compensation is “reasonable” should be fact-specific to the writing 

agent. In other words, the reasonable compensation would be based on the array of 

fixed annuity products and associated product specific commission arrangements

available from the company or companies with whom the agent has an appointment 

or agent contract at the time of sale.

 

19 80 FR 22019.

20 80 FR 22020.
24

Additionally, because it is difficult, if not impossible in practical terms, to determine 

the ultimate “compensation” to the issuing insurance company on the sale of a fixed 

annuity, the reasonable compensation analysis should be focused exclusively on the

compensation received by the writing agent. 

E. Section IV. Conditions for Transactions Described in 

Section (1)(a)(1) through (4).

Section IV(b)(1)(B) – As part of the required written disclosures with respect to the 

execution of the transaction, the Insurance Commission paid by the insurance 

company to the agent ... in connection with the purchase of the recommended 

contract must be disclosed. NAFA seeks clarification that the disclosure is the sales 

commission paid by the insurance company to the writing agent for effecting the 

purchase of the fixed annuity contract.

Section IV(b)(2) – The Proposed Rule would require that the independent fiduciary 

acknowledge in writing receipt of the required disclosure information with respect 

to the transaction, as well as written approval on behalf of the plan [or IRA]. The 

marketplace reality is that parties who one would normally consider to be 

independent fiduciaries are not readily available in IRA transactions. Therefore, 

NAFA seeks clarification that the independent fiduciary is the IRA owner or plan 

recipient or beneficiary.

Section IV(d)(2) – With respect to repeated disclosure requirements for the purchase 

of subsequent or additional insurance or annuity contracts, Section IV(d)(2) states 

that written disclosures need not be repeated where the subsequent contract being 

recommended for purchase is not “materially different” from that for which the 

initial disclosures were obtained. NAFA seeks clarification regarding how the 

Department will define and apply the term “materially different.” 

Accordingly, NAFA proposes the following changes to the proposed amended 

PTE 84-24: 

Revise Section I(a)(4) as follows:

(4) The purchase, with plan assets, of an insurance or annuity 

contract from an insurance company and the resulting receipt of 

compensation by the insurance company in connection with the 

purchase of the insurance or annuity contract.
25

Revise Section I(b) as follows:

The exemptions set forth in Section I(a) do not apply to the purchase 

by an Individual Retirement Account as defined in Section VI, of (1) 

a variable annuity contract or other annuity contract that is a security

registered under federal securities laws, or (2) mutual fund shares.

Revise Section II, as follows: 

If the insurance agent or broker, pension consultant, insurance 

company or investment company Principal Underwriter is a fiduciary 

within the meaning of ERISA section 3(21)(A)(ii) or Code section 

4975(e)(3)(B) with respect to the assets involved in the transaction 

and provides investment advice directly and personally to the 

Retirement Advisor, the following conditions must be satisfied with 

respect to the transaction to the extent they are applicable to the 

fiduciary's actions:

Revise Section VI(b) as follows:

(b) The insurance agent or broker, pension consultant, 

insurance company or investment company Principal Underwriter 

that is a fiduciary acts in the “Best Interest” of the plan or IRA is when 

the fiduciary acts either with the care, skill, prudence, and diligence 

under the circumstances then prevailing that a prudent person would 

exercise based on the investment objectives, risk tolerance, financial 

circumstances and needs of the plan or IRA or when providing advice 

that satisfies state suitability standards for insurance products without 

regard to, and places the interests of the Retirement Investor before

the financial or other interests of the fiduciary, any affiliate or other 

party.

Revise Section VI(h) as follows:

(h) A “Material Conflict of Interest” exists when a person has 

a material financial interest that could places the person’s own 

financial interest before that of the Retirement Investor and thereby

affects the exercise of its best judgment as a fiduciary in rendering 

advice to a plan or IRA. 
26

V. Conclusion

The Department has clearly devoted a great deal of time and effort in drafting the 

Proposed Rule, and NAFA commends those efforts. However, we firmly believe 

that the Proposed Rule as currently written, while well intentioned, will result in 

diminished access to financial and retirement advice and products, particularly for 

low- and medium-balance retirement savers and particularly for insurance products 

such as fixed annuity contracts. NAFA respectfully requests the Department to 

consider and implement the changes and revisions suggested in this letter, which we 

believe will result in greater clarity and understanding for the industry, while 

ensuring that the financial interests and goals of retirement consumers are fully met. 

Without these proposed changes, it would be impossible to meet all the requirements 

set forth by the Proposed Rule.

Again, on behalf of NAFA and its members, I want to thank you for the opportunity 

to submit these comments. We hope they will help the Department understand why 

the Proposed Rule should be amended as we have requested. 

Please do not hesitate to contact me if you would like additional information or 

further clarification.

Sincerely,

Charles “Chip” Anderson

NAFA Executive Director