State Farm, citing DOL fiduciary rule, cuts agents from mutual fund and variable annuity sales

The insurer, which is moving to a "self-directed call center" approach for certain investment products, is among the few companies which has publicized plans for compliance with the DOL rule

Sep 12, 2016 @ 1:49 pm

By Greg Iacurci

State Farm is changing the way the company and its agents handle some retail retirement accounts in response to a new Labor Department regulation that ups the standard of investment advice retirement savers receive.

Beginning in April 2017, when the Department of Labor rule comes into effect, State Farm will only sell and service mutual funds, variable products and tax-qualified bank deposit products through a self-directed customer call center, according to spokeswoman Rachael Risinger.

The news was originally reported by InvestmentNews sister publication Crain's Chicago Business.

State Farm's decision affects 12,000 State Farm agents around the country licensed to sell securities, two-thirds of the company's 18,000 total agents.

State Farm agents, who mainly sell the company's auto and home insurance, have sold investment products since the early 2000s. As of the end of 2015, State Farm managed $11.3 billion in assets it oversees in proprietary mutual funds, up from $10.6 billion a year before.

“Our self-directed call center representatives will make information and resources available to customers who will make their own decisions regarding their investments,” Ms. Risinger said in an e-mailed statement.

“We feel this decision struck the right balance between serving our customers and adhering to the DOL rule,” Ms. Risinger said.

The DOL regulation requires that advisers providing investment advice for a fee in retirement accounts such as IRAs and 401(k)s act as fiduciaries serving their clients' best interest. Brokers and agents today are held to a less-stringent standard of suitability.

In August, the Wall Street Journal reported that the brokerage Edward Jones will curtail mutual fund access for retirement savers in commission accounts and cut investment minimums to comply with the rule.

State Farm and Edward Jones are outliers, though — firms have largely been mum on how they're planning to handle the DOL rule when it comes into effect.

However, many more companies are likely to begin disclosing shortly their anticipated course of action, because the implementation deadline is drawing closer and firms must leave enough time to notify and train their adviser forces, who in turn must notify and educate their clients, according to Denise Valentine, senior analyst at Aite Group.

“I think we'll be hearing a lot more of this in the coming weeks,” Ms. Valentine said. “It's not something you want to leave until next year.”

Other companies may move to more fee-based business, avoid offering certain products in transaction-based accounts (similar to Edward Jones) or adopt a “self-directed” approach for some products (similar to State Farm) as a way to comply with the DOL rule, Ms. Valentine said.

Some firms have also strongly considered an approach whereby they level the commissions among similar products on a brokerage platform to avoid the appearance of a conflict of interest.

State Farm agents will be able to continue offering fixed annuities to clients. Unlike variable annuities, which need a special, and more stringent, exemption under the DOL rule to be sold on commission, fixed annuities don't require such an exemption.

State Farm doesn't sell fixed indexed annuities, a subset of fixed annuity which like variable annuities fall under the enhanced compliance framework of the best-interest contract exemption (BICE).

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Regional brokerages are picking up assets, advisers from wirehouses

Senior columnist Bruce Kelly discusses with deputy editor Bob Hordt the impact of big brokerage houses pulling back on recruiting and regionals promising recruits less bureaucracy.

Latest news & opinion

8 adviser fears for 2019

Interest rates, trade wars and bear markets, oh my! Looking across the industry, here are some of the biggest concerns heading into the new year.

3 big reasons to do a Roth conversion right now

The time is ripe for many to convert a pretax IRA to a Roth.

10 must-know facts about today's 401(k) plans

Here are the latest changes in 401(k) plans across areas such as investments, fees, contributions, investment advice and more.

Questions abound as Ohio National stops commission payments this week

Advisers are grappling with how to proceed, with their clients and their businesses, as the insurer's new annuity trail policy takes effect.

Top 10 RIAs in the South

These are the largest registered investment advisory firms in the Southern U.S., based on AUM.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print