Should the DOL Limit Annuity Sales Commissions?

The Department of Labor (DOL) fiduciary standard that applies to financial advisors who offer investment advice and sell financial products to their clients has been changed multiple times in recent years under various administrations.

Under the Biden administration, recent proposals would focus on commissions that are received by financial advisors who sell annuities to their clients. Some of those proposals would prohibit financial advisors from receiving any commissions on annuity sales.

We asked professors Robert Bloink and William Byrnes, authors of ALM’s Tax Facts with opposing political viewpoints, to share their opinions about proposed regulations that would limit commissions for annuity sales agents.

Below is a summary of the debate that ensued between the two professors.

Their Votes:

Bloink

Byrnes

Their Reasons:

Bloink: We need to be conscious of the conflicts of interest that often arise in these situations. Selling annuities for commissions means that the advisor may primarily be motivated by their own desire to make a profit, rather than by what is actually in the client’s best interests.

Unfortunately, we now have a complex set of ever-changing fiduciary regulations designed to prevent these and other types of conflicts in the annuity marketplace. Prohibiting, or sharply limiting, a financial advisor’s commissions on these annuity products can be a step toward making sure the advisor is motivated by what the client needs rather than annuity commissions.

Byrnes: All we would be doing by adopting these proposals is making it more expensive for the average American to get the smart financial advice they need and deserve. These proposals and rules make annuities a less attractive sales product for financial advisors, meaning that it becomes less likely that the financial producer will recommend these products even if they do happen to be in the client’s best interest. After all, why would the producer be inclined to even pay attention to a product when there’s no financial incentive for the producers themselves?