J. Kevin A. McKechnie

Senior Vice President & Director

Office of Insurance Advocacy

202-663-5172

kmckechn@aba.com

July 21, 2015

Office of Regulations and Interpretations 

Employee Benefits Security Administration

Attn: Conflict of Interest Rule, Room N–5655

U.S. Department of Labor 

200 Constitution Avenue, N.W. 

Washington, DC 20210 

Via Federal eRulemaking Portal: http://www.regulations.gov. 

Re: Proposed Rule: Definition of the Term “Fiduciary”; Conflict of Interest Rule –

Retirement Investment Advice (RIN 1210–AB32)

Proposed Best Interest Contract Exemption (ZRIN 1210–ZA25)

Dear Sir or Madam:

The American Bankers Insurance Association (“ABIA”), a subsidiary of the American Bankers 

Association, provides the following comments in connection with two proposals from the 

Department of Labor (the “Department”) regarding the duties of fiduciaries to retirement 

investors. The proposals would broaden the applicability of, and revise, the conflict of interest 

rules established by the Employee Retirement Income Security Act of 1974 (“ERISA”) that 

govern fiduciary investment advisers who provide retirement investment advice to sponsors, 

participants, and beneficiaries of employee benefit plans, investment retirement accounts, and 

certain medical and education savings accounts (collectively “IRAs”). Together, the proposals 

would affect some of the members of ABIA, namely, banks and affiliated insurance agencies that 

are actively engaged in the business of insurance, principally as agents and brokers.

The first proposal would broaden the definition of “fiduciary.” It also would partially revoke the

exemption from ERISA’s prohibited transaction rules for insurance agents and brokers who 

receive commissions for variable annuities and other annuities that are regulated as securities –

Prohibited Transaction Exemption (“PTE”) 84-24.1 Some insurance agents and brokers that are 

currently not covered would be treated as a fiduciary under the proposed rule. The second 

proposal would add to PTE 84-24 a requirement that insurance agents and brokers who are 

fiduciaries comply with the requirements of a new Best Interest Contract Exemption when they 

provide investment advice to retail investors such as plan participants and beneficiaries, 

individual retirement account owners, and small plans.2

The ABIA is concerned that the proposals would add a new layer of regulatory burden to 

insurance agents and brokers who offer variable products – individuals who are already heavily 

 

1

80 Fed. Reg. 21928 (April 20, 2015).

2

80 Fed. Reg. 21960 (April 20, 2015).
2

regulated at the state and federal levels – which likely would reduce the availability of these 

products. Accordingly, the ABIA recommends the following: 

 Sales of certain annuities and other insurance products that require a FINRA license 

should not be considered to be an activity that makes a person a fiduciary; there are 

sufficient consumer controls in place for those activities (insurance and securities 

licensing and regulation).

 If the activities are included within the definition of “fiduciary,” the Department should 

retain PTE 84-24 as is, to avoid increasing the regulatory burden on insurance agents and 

brokers who recommend variable insurance products. 

Current regulation of agents and brokers that offer variable products is adequate.

The Department’s proposed definition of “fiduciary” would define “investment advice” to 

include a “recommendation as to the advisability of acquiring, holding, disposing or exchanging

securities or other property.”3 That would include the activities of insurance agents and brokers 

who recommend the purchase of variable products, such as variable annuities. The proposed 

definitional change would add another layer of regulatory burden to insurance agents and brokers 

who offer variable products – individuals who are already subject to significant state and federal 

regulation when offering variable products, including suitability requirements. 

The Gramm-Leach-Bliley Act4provides for the “functional regulation” of insurance and 

securities activities by the regulators that are best situated to regulate the activities. 

Consequently, insurance agents and brokers who offer variable products are subject to both 

insurance and securities licensing and regulation. As a registered representative of a brokerdealer, an insurance agent or broker who recommends variable products must adhere to the 

broker-dealer’s directives designed to ensure compliance with FINRA’s suitability rules, 

including requirements related to recommendations. For example, FINRA Rule 2111 generally 

requires that a broker-dealer and a financial adviser “have a reasonable basis to believe that a 

recommended transaction or investment strategy involving a security or securities is suitable for 

the customer.” 

Additionally insurance agents and brokers who offer variable products are subject to state 

regulation. They are required to be licensed as an “insurance producer” in the state where the 

products are marketed. Many states have adopted several model laws and regulations issued by 

the National Association of Insurance Commissioners (“NAIC”) that relate to variable products. 

Among them are the Suitability In Annuity Transactions Model Regulation (NAIC Model No. 

275-1), which requires an insurance producer, when recommending the purchase or exchange of 

an annuity, including a variable-rate annuity, to have “reasonable grounds” to believe that a 

recommendation is suitable for the customer based on certain information the producer is 

required to make a reasonable effort to obtain. (Compliance with FINRA’s Rule 2111 

 

3

80 Fed. Reg. at 21957.

4

Pub. L. 106-102.
3

constitutes compliance with the NAIC’s model suitability regulation.) And, NAIC Model No. 

245-1 (Annuity Disclosure Model Regulation) requires producers to disclose certain information 

about annuity contracts to protect consumers. 

Both of these extensive licensing and regulatory regimes have proven effective in protecting 

consumers, and there is no evidence that insurance agents and brokers are taking advantage of, or 

abusing, retail retirement investors. Because insurance agents and brokers are subject to these 

requirements, they should not be considered to be a “fiduciary” and have to comply with a third 

regulatory regime overseen by the Department – one based on a raised compliance standard that 

likely would reduce the availability of variable products to retail retirement investors. 

The Prohibited Transaction Exemption Should Not be Modified. 

If the Department elects to adopt the proposed definition of “fiduciary” to include insurance 

agents and brokers who offer variable products, we urge it to keep the existing prohibited 

transaction exemption without modification. The Department is proposing to amend PTE 84–24 

to require all fiduciaries relying on the exemption to adhere to the same impartial conduct 

standards required in the Best Interest Contract Exemption. The Department states it is proposing 

that change so investment advice fiduciaries to IRA owners would not be able to rely on the 

exemption with respect to transactions involving variable annuity contracts and other annuity 

contracts that constitute securities under federal securities laws. 

The Best Interest Contract Exemption would add a significant burden to insurance agents and 

brokers that is not warranted, given the current regulatory regimes to which they are subject. 

The exemption “requires the [broker-dealer] and the [investment advice fiduciary] to 

contractually acknowledge fiduciary status, commit to adhere to basic standards of impartial 

conduct, warrant that they will comply with applicable federal and state laws governing advice 

and that they have adopted policies and procedures reasonably designed to mitigate any harmful 

impact of conflicts of interest, and disclose basic information on their conflicts of interest and on 

the cost of their advice,”5including “maintain[ing] certain data and mak[ing] it available to the 

Department upon request, to help evaluate the effectiveness of the exemption in safeguarding the 

interests of plan and IRA investors.”

We fail to see the need to apply those requirements to insurance agents and brokers. These 

requirements will ultimately result in needless lawsuits without any measurable benefits. 

 

5

80 Fed. Reg. at 21948.
4

Conclusion

The ABIA is concerned that the two proposals would add a new, third layer of regulation to 

insurance agents and brokers who offer variable products, which could diminish the products’ 

availability. These activities are already functionally regulated from both the insurance and 

securities perspectives. We urge the Department not to modify the definition of “fiduciary” to 

include insurance agents and brokers. But if it does, we urge the Department to retain PTE 84-24 

as is.

Sincerely,

SVP & Director, ABA Office of Insurance Advocacy