In a brand new report designed to help the Division of Labor’s embattled retirement safety rule, Sen. Elizabeth Warren accuses the insurance coverage and annuities industries of paying gross sales incentives and kickbacks that wind up costing prospects billions of {dollars}.
The report, entitled, “CANCUN, CRUISES AND CASH: How the Division of Labor’s New Retirement Safety Rule Would Finish Insurance coverage Trade Kickbacks that Price Savers Billions,” is the fruits of an investigation Warren and her workers launched in April.
The report particulars the findings of investigations into 15 of the most important annuities corporations and their use of what Warren describes as kickbacks and perks to push conflicted gross sales.
The investigation particulars the journey and money gross sales prizes and perks that insurers and annuities corporations supply, which Warren alleges creates an impetus for advisors and brokers to aggressively push extra expensive merchandise.
“The trade’s secret kickbacks damage shoppers by incentivizing brokers to promote sure merchandise as a result of they may earn an even bigger money bonus or fancier trip, not as a result of they’re of their shopper’s greatest curiosity,” Warren’s invesgtigators wrote.
As an illustration, one insurer provided its high 10 life insurance coverage brokers and high 30 annuity brokers a free week-long journey to Sydney, Australia, in March. Different corporations’ 2024 gross sales contest prizes included journeys to Cancun, Mexico, Venice and an 11-day journey to New Zealand.
The report additionally lists 15 corporations the present monetary incentives for gross sales, together with money bonuses and better fee charges—applications.
Warren additionally faulted insurers and annuities corporations for utilizing insufficient disclosures to deflect accusations of unethical gross sales, in addition to their follow of utilizing third-party gross sales and advertising organizations (SMOs) and area advertising organizations (FMOs) to sidestep duty for conflicted gross sales practices.
Warren, a Democrat from Massachusetts, has been a vocal supporter of the DOL fiduciary rule, which is designed to guard retirement traders from conflicted recommendation once they roll over their retirement property into an annuity or IRA.
The DOL rule was slated to enter impact Sept. 24, however was stayed by two federal courts because of lawsuits by the annuities, insurance coverage and broker-dealer industries, because the courts deliberate the rule’s. The DOL has filed discover that it intends to enchantment the injunctions.
For the primary time, the brand new rule would have utilized a fiduciary normal to insurance coverage brokers and even brokers and reps who present even one-time rollover annuities and IRA suggestions.
Below the rule, any rep or agent who was discovered to supply conflicted recommendation that put their very own pursuits earlier than prospects’ may have been banned from pursuing rollover enterprise and compelled to pay a tremendous to the IRS.
With out the protections of the DOL fiduciary rule, conflicted recommendation was projected by the Biden White Home in March to price retirement traders $55 billion over the subsequent many years. Ror those that roll over their retirement financial savings into annuities, traders may lose one other $32.5 billion with out the rule, Warren’s investigators declare.
There are too many holes within the present Nationwide Affiliation of Insurance coverage Commissioners (NAIC) and SEC requirements to sufficiently shield shoppers, Warren’s investigators allege. Even when corporations complied with all current guidelines, “they could nonetheless be immediately or not directly offering gross sales incentives that create important conflicts of curiosity—which is strictly why the brand new DOL rule is required,” investigators wrote, noting that “the present NAIC ‘greatest curiosity’ rule is a greatest curiosity normal in identify solely.’”
