September 24, 2015

Office of Exemption Determinations

Employee Benefits Security Administration 

Attention D-11712 & D-11850

U.S. Department of Labor 

200 Constitution Avenue NW. Suite 400 

Washington, DC 20210

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 NW. 

Washington, DC 20210

 Re: RIN 1210-AB32: Employee Benefits Security Administration’s Notice of 

Proposed Rulemaking Definition of the Term “Fiduciary;” Conflict of Interest RuleRetirement Investment Advice; ZRIN: 1210-ZA25; D-11712: Proposed Best Interest 

Contract Exemption; ZRIN: 1210-ZA25; D-11850: Proposed Amendment to and 

Proposed Partial Revocation of Prohibited Transaction Exemption 84-24

Dear Assistant Secretary Borzi:

As you know, the Indexed Annuity Leadership Council (IALC) is a consortium of life 

insurance companies that offer fixed indexed annuities or “FIAs”. Established in 2011, the 

IALC educates consumers, the media, regulators and industry professionals about FIAs. 

IALC companies today have more than 1.3 million policies in force with more than $84 

billion in assets.

We appreciate the time spent by the Department staff during the numerous meetings with 

the IALC and its member companies to discuss fixed indexed annuities (FIAs) and the 

opportunity provided to me to testify on behalf of the IALC and to respond to questions 

from the Department. The IALC has filed two comment letters that offer constructive 

suggestions on how to make the PTE function as intended for all fixed annuities. We are 

aware that the National Association of Fixed Annuities (NAFA) has also met with the 

Department and filed similar comment letters. 

As we have underscored, fixed annuity products, including FIAs, offer consumers an ability 
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to invest a portion of their retirement savings in products that provide guaranteed income 

streams and principal protection. Preserving the distribution network for these products 

through the proposed PTE 84-24 will help maintain a competitive market and consumer 

choice to achieve these retirement objectives.

In each instance we have described how FIAs are insurance products that are identical to 

other fixed annuity products except for the method of crediting earnings. In addition, the 

IALC and NAFA comment letters and the testimony offered by the IALC at the DOL hearing 

underscored the fact that FIAs are in every way the same financial product as other fixed 

annuities, all of which directly compete against one another in the market. 

In fact, each and every suggested modification to PTE 84-24 offered by the comment 

letters we have already submitted offer suggestions for all fixed annuities – because the 

products are legally indistinguishable from one another. Under state insurance law 

regulation FIAs are treated like every other fixed annuity. Under federal securities law 

FIAs are treated like every other fixed annuity and are exempt from registration under 

section 3(a)(8) of the Securities Act of 1933 as a state-regulated insurance product. Most 

recently, Congress in section 989J of the Dodd–Frank Wall Street Reform and Consumer 

Protection Act (P.L. 111- 203) reaffirmed that under federal securities law FIAs are like 

every other fixed annuity product. 

Why?

Because as the comment letters already submitted make clear, the only difference 

between an FIA and any other fixed annuity is the method by which earnings are credited 

to the policy. Fixed annuities can credit earnings based on a periodically declared rate, a 

multi-year guaranteed rate, or a rate established based on a formula that references a 

market index (a fixed indexed annuity). In each case, the contract’s premium is not 

invested in a separate account or specific investment, but rather is supported by the 

general account of the insurance company. In the case of an FIA, the index is only used to 

compute earnings credited to the policy, there is no actual investment by the policyholder 

or the insurance company in the financial instruments that comprise the particular index. 

A typical fixed index annuity policy allows the policyholder to elect to switch the chosen 

index or computation method from year-to-year, or alternatively, to select a fixed rate for 

the year. The only difference among these fixed annuity products is the method for 

determining the interest earnings that are credited to the policy. 

FIAs like every other fixed annuity are supported only by the general account of the 

insurer, investment risk is borne by the insurer, no fees are directly paid by the 

policyholder to and for the benefit of the insurance agent, there is no risk of principal loss, 

they all offer a predictable guaranteed income amount through both base contacts and 

riders, receive identical protection under state guaranty funds, and are sold through state 

licensed insurance agents. The chart below highlights these facts.
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Types of Annuities

Characteristics Fixed Annuities

that are not 

Indexed Annuities

Fixed 

Indexed 

Annuities

Variable Annuities

Investment Vehicle General account 

of insurer

General 

account of 

insurer

Separate accounts

Investment Risk Borne by insurer Borne by 

insurer Borne by policyholder

Fees No direct charge 

to policyholder

No direct 

charge to 

policyholder

Mortality and expense 

risk charge; 

administrative charge; 

underlying fund 

expense charge

Risk to Principal No risk of loss No risk of loss

Risk of loss due to 

underlying fund 

performance

Predictable Guaranteed 

Income Amount

• Through Base 

Contract Yes Yes No

• Through Income 

Rider Yes Yes Yes

Tax Deferral Yes Yes Yes

State Guaranty Fund 

Protection Yes Yes

Yes - amounts tied to 

general account 

obligations No -

amounts in separate 

account investments

Regulatory Authority State insurance 

commissioner

State 

insurance 

commissioner

SEC, FINRA, State 

insurance and 

securities regulators 

Seller Licensing 

Requirement

State issued life 

insurance license

State issued 

life insurance 

license

FINRA issued Series 6 or 

7 license; state issued 

life insurance license
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All types of fixed annuities offer various options to consumers known as riders. There is 

nothing particularly more complex about FIAs as compared with other fixed annuities. 

In fact, many of the riders offered with FIAs are also offered with other fixed annuities. Of 

course, whether a product feature is more complex or not is irrelevant as to which 

prohibited transaction rule should apply. Complexity in of itself does not create conflicted 

advice. Every financial product inherently has some level of complexity, just as every 

consumer has a different level of financial sophistication. The proposed application of a 

uniform fiduciary standard – a standard that requires the adviser to act in his or her 

customer’s best interest – is intended to protect consumers regardless of such levels of 

complexity or sophistication. On the other hand, the proposed PTE is intended to 

minimize the harm of conflicted advice. However, and most importantly, there is in fact 

no more complexity with an FIA than with any other fixed annuity product. 

Lastly, there is no different conflict created when an insurance company pays a

commission to an insurance agent selling a fixed annuity that is an FIA than a fixed 

annuity that is not an FIA. For example, there are no other fees, future payments, or 

other financial incentives with an FIA that creates a greater or different conflict than a 

fixed annuity that is not an FIA. Thus, it is only appropriate to continue to treat all fixed 

annuities identically for purposes of an exemption from the prohibited transaction rules. 

To do otherwise, would be unreasonable and would create competitive advantages and 

disadvantages among competing fixed annuity products.

For the reasons discussed below, the new proposed Best Interest Contract Exemption 

(BICE) would not work in the context of any fixed annuity product, including an FIA.

First, FIAs are predominantly sold through state licensed insurance agents. While those 

agents may or may not also be licensed as broker-dealers or registered investment 

advisers, for the sale of FIAs they are regulated as state insurance agents. Insurance 

companies offering fixed annuities rely on independent insurance agents to sell the vast 

majority of their products. In fact, more than 70% of FIAs are sold through such agents.1 

As independent agents there is no financial institution that could sign a contract to act as a 

fiduciary as required under BICE. While the insurance agent has the interaction with the 

customer in order to be able to make recommendations about insurance products that are 

in the customer’s best interest, the insurance company does not have the detailed 

knowledge of the particular customer to act as a co-fiduciary. The insurance company,

unlike a broker-dealer or registered investment adviser, simply does not have access to a 

comprehensive detailed list of financial products purchased or owned by the consumer

and does not offer advice on such matters. This does not mean that under state insurance 

law an insurance company does not have specific legal obligations to its customers. But 

the notion of extending a fiduciary duty to an insurance company for the advice offered to 

a particular consumer by an independent agent is simply not feasible. Similarly, an 

insurance company that sells only fixed annuities will not be in a position to certify that its 

limited product offering is sufficient for any particular customer of an independent 

insurance agent as required by BICE. 

 1Wink’s Sales & Market Report 2nd Quarter, 2015 published by Wink’s Inc.
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Second, independent agents are in most instances authorized to sell fixed annuities 

offered by more than one insurance company. Unlike a broker-dealer or registered 

investment adviser with respect to their registered representatives, an insurance 

company does not control the product portfolio of the independent insurance agents 

authorized to sell its products. Thus, an insurance agent might have to request customers 

to sign contracts with multiple insurance companies. Similarly, such independent agents 

would need to adopt a phalanx of policies and procedures to ensure compliance with BICE 

as each company would insist on its own processes and procedures to minimize conflicted 

advice as required under that exemption. 

Third, the fee disclosures required under BICE do not reflect fixed annuity products, 

including FIAs, because as noted above, there are no fees or payments made by a 

consumer to the insurance agent other than premiums and fees for riders paid to the 

insurance company. PTE 84-24 as amended would require disclosure to the consumer of 

all commissions paid to the insurance agent, while BICE would in addition require annual 

disclosures to customers and disclosures on the insurance agent’s website of all fees. The 

notion of annual disclosures by an independent insurance agent that there are no fees paid 

to the agent would be costly, but it would provide absolutely no benefit to the consumer or

additional protection from conflicted advice. 

As we stated above, fixed annuity products, including FIAs, offer consumers an ability to 

invest a portion of their retirement savings in products that provide guaranteed income 

streams and principal protection. Excluding one or more fixed annuity products or 

features from PTE 84-24 would disadvantage consumers whose best interest would be 

served by investing in a lifetime income option. 

We appreciate that the Department’s proposed PTE 84-24 has maintained all fixed

annuities including FIAs as eligible to rely on the exemption. To date we have not found 

comments in the public record or testimony that suggests that the Department was wrong 

in so doing. The proposal is consistent with federal law as reaffirmed by the Dodd–Frank 

Wall Street Reform and Consumer Protection Act (P.L. 111-203) that FIAs are fixed 

annuities. Finally, the proposed PTE treats all fixed annuity products that compete 

against each other equally. Moving some or all fixed annuity products into BICE could 

totally disrupt the distribution channels for such products and would not serve the best 

interest of consumers seeking to protect their retirement savings against longevity risk. 

Sincerely,

Jim Poolman, Executive Director

JimPoolman@indexedannuityinsights.com