Wednesday, April 06, 2016

Teachers Now In Insurance Agents Crosshairs After DOL Rule

The long awaited Department of Labor (DOL) Conflict of Interest rule was finalized this morning.

This is a good thing. In fact, it's a great thing.

The DOL managed to do something many thought impossible in this day of special interests dominating Washington. I am proud of the DOL and wish them a sincere congrats. It was a job well done and a long, hard fight. Unfortunately, the new (some would say revolutionary) rule does not apply to non-ERISA retirement plans such as the 403(b) and 457(b), plans which millions of government employees contribute to instead of a 401(k).


Public School Employees are among the most abused retirement plan participants in the country (likely only Seniors are abused as much). They are sold terrible products by insurance agents and brokers who are almost never subject to a Fiduciary duty. The new rule will not change that and this puts an even bigger target on the backs of Public School Teachers (and other public employees).

Imagine you are an agent who likes to sell Equity Indexed Annuities (EIA)(products that are not normally in the best interest of the client, but pay big commissions to the agent). Today you are likely shell-shocked by the new DOL rule which just made it much more difficult to sell EIAs in Individual Retirement Accounts (IRA). Incredible vacations and large commission checks are a thing of the past...or are they?

What if there was one last bastion of the retirement market where you could continue to hunt for juicy prey to sell your toxic products? This market exists, it's called the non-ERISA 403(b) market.

Since public school employees contribute to a government sponsored plan, they are exempt from the protections of the new rule. This means that insurance agents can continue to sell the high commission, amazing trips and perks products that they've always sold - as long as they do so within a 403(b) or 457(b) of a client who works for a government institution.

Suddenly the more than 3 million teachers in the United States are more valuable. The teachers won't make any more money or get any additional respect, instead they'll come under the crosshairs of every depressed insurance agent out there who refuses to do the ethical and moral thing of becoming a fiduciary. These agents will begin focusing their attention on public school employees, putting an even bigger target on their back. Currently the best selling products in the public 403(b) market are EIAs.

Marketing departments across the country are now switching focus to figure out the best way to access teachers. This means more money will be spent to prevent vendor consolidation and to defeat any measure that might stop insurance agents from selling inferior products.

It just got more dangerous for public school employees. They are about to be the most stalked employees in America.

Scott Dauenhauer, CFP, MPAS, AIF

Author of "Wild West: Providing Fiduciary Advice to Public School Employees"
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