New Jersey Sets Horizon Blue Reserve Cap

July 4, 2017 | By Allison Bell Insurance Editor ThinkAdvisor

A last-minute deal reopened state beaches for the Fourth of July

 

New Jersey Gov. Chris Christie approved deals Tuesday that put a soft cap on how much capital Horizon Blue Cross Blue Shield of New Jersey can have, and reopened state campgrounds and beaches for the Fourth of July.A bitter fight over the carrier's reserves led to a partial state government shutdown that started early Saturday morning. Christie, a Republican, tried to frame the conflict as a battle between state health care funding needs and a multi-billion-dollar insurance company. Horizon worked hard to win support from state residents, including members of public employee unions. Many state residents ended up seeing the conflict as a battle between state officials who wanted to seize control of Horizon's money and people who wanted to go to the beach.

Horizon

Horizon, a Newark, New Jersey-based company, provides or administers major medical coverage for 3.8 million people. It has $3 billion in capital reserves.

Horizon is the only company in New Jersey with a health care service corporation charter.

S2 v. S4

Originally, Christie backed S4. That bill would have given the state insurance commissioner the authority to set limits on how much capital a health care service corporation could have.

The commissioner could have required a health care service corporation to put any excess capital in a state health care quality and wellness program.

S4 would have also classified Horizon as an insurer of last resort. If the federal government eliminated the Affordable Care Act ban on medical underwriting, Horizon would have had to take applicants who were too risky to get individual medical coverage from other major medical coverage providers.

S4 supporters, including Christie, argued that Horizon was loosely regulated and had too much capital. Christie talked about using $300 million in excess Horizon reserves to pay for anti-opioid abuse programs.

Horizon argued that insurer-of-last-resort status would hurt its finances and force its enrollees to provide a subsidy for other carriers. The company argued that the reserve cap provision was so vague that it would have let state political appointees use Horizon's reserves to create a slush fund.

S2, the bill Christie actually signed, sets the maximum risk-based capital ratio for a health care service corporation at 725%. If a health care service corporation exceeds that RBC cap, the corporation is supposed to come up with a plan for using the excess capital to help its enrollees, not put the extra cash in a state fund.

S2 also eliminates the insurer-of-last-resort provision.

S4 would have required Horizon policyholders to elect 20% of the company's board members. S2 simply gives state officials the authority to appoint two members to the company's board.

Christie signed S4 shortly before midnight on Tuesday, and he signed a budget deal early today.

Horizon's Reaction

Horizon executives posted a statement praising the S2 compromise.

The compromise legislation "is reasonable, avoids higher costs for our members, and ... does not impose unfair or excess obligations," the company said in the statement.

The company made a point of thanking state lawmakers, and "a broad coalition of business, labor and consumer groups who stood up for Horizon's 3.8 million policyholders."

Horizon did not thank Christie.

Shutdown Fight

Last week, Christie accused Horizon and its supporters of playing a dangerous game, by blocking passage of S4.

Christie said Friday that the state government would have to shut down, because lawmakers had not sent him a budget he could sign.

Christie issued a shutdown order Friday. The order kept public safety agencies, schools and casino oversight operations open. It closed many state offices that serve the public, such as Department of Motor Vehicles offices and courthouses.

For members of the public, the most obvious immediate effect was a shutdown of the state's beaches and state campgrounds during the first hot, sunny weekend of the summer.

Angry travelers posted reports of being evicted from state park campsites they had reserved months in advance.

State troopers shut would-be beachgoers out of popular state beaches, including the beaches at Island Beach State Park.

The state opened the park in 1953. Christie's family and five other families still have beach houses in the park, according to the Newark Star-Ledger. State troopers let Christie's family enter, while they ejected other families with beach houses in the park and kept members of the public from entering.

News services published pictures of Christie sitting on a beach that was closed to the public. Some people used Twitter, Facebook and other social media services to post parody versions of the photos, with Christie sitting in his beach chair in new, absurd settings. The pictures, and the parody campaign, hurt Christie's effort to portray himself as a David standing up to an insurance company Goliath.

5 Worst States for Insurance Producer Fines

July 2, 2017 | By Think Advisor

Some states hit insurance producers with a lot more than others, and some are more likely to impose a fine than to get a producer to pay any ill-gotten money back to the customers.

The National Association of Insurance Commissioners gives a little information about trends in producer fines in volume one of its new 2016 Insurance Department Resources Report.

The NAIC is a Kansas City, Missouri-based group for insurance departments. It creates the resources report to show how many people and how much cash each state devote to regulating insurance, and how much insurance compliance activity each state handles.

Scammers target the mighty and the lowly, especially during tax season.

The report includes a great deal of interesting information about how insurance regulation works.

California, the state with the biggest department, has an insurance department staff of 1,392 and a 2016 budget of $204 million. Its deputy and assistant commissioners earned annual salaries ranging from $61,800 to $195,696.

Two U.S. territories, American Samoa and the U.S. Virginia Islands, had no insurance regulators in 2016. The state with the smallest insurance department staff, had 26 employees and an annual budget of $3 million. Wyoming's deputy and assistant commissioners earned annual salaries ranging from $84,960 to $127,440.

About half of state insurance departments expect to have a budget over $15 million in 2018, and about half expect to have 2018 budgets under $15 million.

Insurance agents and brokers might find the section on regulation of insurance producers interesting. The number of insurance producer fines in each state ranges from none to 4,671.

Here's a look at the number of insurance producer fines in each state. We also give the number of producer-related cases involving restitution. A low number of restitution cases might mean that producers in a state rarely harm customers, or that producers who do harm customers are unable to pay restitution, but it could also have something to do with how a state regulates producers.

New Mexico imposed no fines on producers in 2016

5. California

Number of licensed producers: 396,891

Number of fines in 2016: 158

Total value of fines: $1,176,666

Average amount per fine: $7,447

Number of producers who had to pay restitution to victims: 2

Number of fines in 2014: 124


4. Ohio

Number of licensed producers: 221,857

Number of fines in 2016: 207

Total value of fines: $60,550

Average amount per fine: $292

Number of producers who had to pay restitution to victims:

Number of fines in 2014: 0


3. Louisiana

Number of licensed producers: 127,141

Number of fines in 2016: 303

Total value of fines: $129,196

Average amount per fine: $426

Number of producers who had to pay restitution to victims: 0

Number of fines in 2014: 0


2. Massachusetts

Number of licensed producers: 130,514

Number of fines in 2016: 393

Total value of fines: $130,280

Average amount per fine: $331

Number of producers who had to pay restitution to victims: 39

Number of fines in 2014: 41


1. Delaware 

Number of licensed producers: 88,736

Number of fines in 2016: 4,671

Total value of fines: $1,260,850

Average amount per fine: $270

Number of producers who had to pay restitution to victims: 0

Number of fines in 2014: 5,671


In the technical notes for the producer fine table, the NAIC says Delaware has a large number of fines partly because late fees on license renewals are classified as fines.

 

5 Things for Agents to Know About the Senate Health Bill

5 Things for Agents to Know About the Senate Health Bill

June 23, 2017 | By Think Advisor

 

The Senate's new Better Care Reconciliation Act bill might fail, but it could still pass.

Republicans hold just 52 seats in the Senate. Senate Majority Leader Mitch McConnell is struggling to get more conservative and more moderate Republicans to unite behind the version of the Affordable Care Act change bill released Thursday. At press time, at least eight Republican senators were publicly expressing skepticism about the idea of voting for the bill.

In the past, however, backers of other health bills have faced similar problems with rounding up votes and triumphed.

In 2009 and 2010, when the Democrats were working on the bills that created the Affordable Care Act, they had trouble with getting the most liberal Democrats and the most moderate Democrats to vote for the same bill.

In May, when House Speaker Paul Ryan brought the House ACA change bill, the American Health Care Act bill, to the House floor, no one knew what would happen. House members ended up passing it by a 217-213 vote.

Sen. John Cornyn, R-Texas, told Bloomberg today that he's confident the Better Care Reconciliation Act bill will attract enough Republican votes to get through the Senate.

The 142-page Better Care draft is written in a dense, confusing way, with many key provisions that would change the laws now in force by adding sentence fragments, deleting several words, or adding or deleting punctuation marks. The draft does not always explain what effect those changes are supposed to have.

Perhaps as a result, commentary on specific provisions in the draft has been scarce.

Here's a look at five of the more focused reactions that came out yesterday and today.

1. Insurers have mixed feelings.

America's Health Insurance Plans, a group for health insurers, is not taking an official position on the draft. It told Bloomberg that it likes the commercial insurance subsidies in the draft but has concerns about provisions that would phase in dramatic cuts in Medicaid funding.

The Blue Cross and Blue Shield Association is also praising the subsidy provisions, but it says the Senate needs to add strong incentives for people to keep themselves covered.

2. Experts think a state Affordable Care Act waiver program expansion program provision could be powerful.

The Patient Protection and Affordable Care, part of the ACA, already includes a Section 1332 waiver program provision. A state can use that provision to tinker with how its exchange program works, and with other ACA rules.

The Senate Better Care draft would let a state use Section 1332 to change many different ACA rules. The draft makes understanding which rules the draft could actually change difficult. The draft states that a state could ask to change the rules described in one paragraph in PPACA Section 1332. That paragraph in PPACA Section 1332 refers, in turn, to six major sections of PPACA. Some of those six sections may, in turn, refer to additional sections.

Joseph Antos and James C. Capretta of the American Enterprise Institute write in a on the website of Health Affairs, an academic journal, that they think a state could use a Better Care Section 1332 waiver to change its essential health benefits package, or standard benefits package, but not to bring back medical underwriting.

 

(Image: Bram Janssens/Hemera)

Tracy Watts, a health policy specialist at Mercer, says in a commentary that she also thinks the waiver provision would let a state change its essential health benefits package. "We will take a deeper look into this issue and post about it next week," Watts writes.

Any changes in the essential health benefits program could affect large group plans, including self-insured plans, as well as individual and small-group plans, because group plans must provide unlimited benefits for any essential health benefits that they do cover.

3. The Section 1332 waive program expansion could let states give insurers the ability to issue limited-benefit coverage.

Timothy Jost and Sara Rosenbaum write in another Health Affairs blog that the Better Care waiver program provision has a potential problem: It would let the U.S. Health and Human Services secretary approve or reject a waiver proposal based only on what the proposal would do to the cost or use of health coverage.

The provision "ignores both how comprehensive the coverage must be and how high cost-sharing may be under the waiver," Jost and Rosenbaum write.

4. Fitch Ratings thinks the Better Care draft rules could be hard on insurers with large individual health or Medicaid operations.

The draft would provide more cash for individual commercial health insurance subsidies, but it would keep the current ban on medical underwriting, according to Fitch.

The subsidy money would help insurers, but keeping the ban on medical underwriting would limit insurers' ability to manage risk, Fitch says.

Changes and reductions in federal Medicaid funding could hurt insurers, but that funding pressure could also help insurers, by pushing states to make more use of Medicaid programs managed by outside companies, Fitch says.

"Additionally, with such sweeping legislation, unintended and unforeseen consequences are likely to create uncertainty over the ultimate net effect on health insurers," Fitch says.

5. The Better Care draft could wipe out bare-bones group health benefits.

Before the Affordable Care Act came along, some employers offered at least some workers limited-benefit health plans, or plans designed to provide anywhere from about $1,000 to $200,000 in health benefits.

The Affordable Care Act has eliminated traditional limited-benefit medical plans in the individual and small-group markets, but large groups can now offer bare-bones major medical plans that provide just enough coverage to meet the ACA employer "minimum essential coverage" offer requirements.

Compliance lawyers say in a commentary that the Better Care draft could wipe out the market for bare-bones minimum essential coverage products.

Elimination of the ACA employer mandate would end the pressure for employers to offer the products to avoid ACA penalties, the Lockton lawyers write.

Meanwhile, the Lockton lawyers write, making those minimum-value products available to workers could shut those workers out of any health insurance premium subsidy system that still exists, because, after 2019, the Better Care draft premium tax credit subsidy program would shut out any worker who had access to any employer-sponsored minimum essential coverage. 

DOL Fiduciary Deadline Is Coming. Here’s a Compliance Checklist

May 26, 2017 | By Melanie Waddell / Think Advisor

 

Compliance firms and attorneys are busy giving advisors, BDs and plan sponsors a to-do list as the June 9 compliance date nears

Now that the Department of Labor has confirmed that its fiduciary rule’s compliance date will kick in on June 9, compliance firms and attorneys are busy providing checklists to broker-dealers, advisors and plan sponsors on how to prepare.

“We actually think the current state of affairs makes the most sense” in that the FAQs guidance issued by Labor on May 22 requires a best interest standard “without specifically mandating how firms must comply,” said Cipperman Compliance Services in a Thursday commentary. “The Investment Advisers Act takes that approach, and it has worked pretty well since 1940.”

While compliance measures are in full swing, litigation over the rule continues. The nine groups appealing their case against the fiduciary rule in a Texas court have asked the judge overseeing the case to turn down DOL’s Wednesday request to extend filing their June 2 response brief. The coalition of firms still fighting the rule — which includes the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association and the Financial Services Institute, has filed in opposition to that request.  

Dominic DeMatties, a partner in Alston & Bird’s Employee Benefits & Executive Compensation Group, is advising plan sponsors to lock into place procedures “to help ensure their employees understand the effect of the rule including the impact of the rule on everyday interactions with plan participants.”

Also, he advised, “sponsors and service providers should keep an eye on, and may wish to get or continue to be involved in,” Labor’s continuing regulatory review and potential additional changes to the rule as the Jan. 1, 2018, best interest contract exemption deadline approaches.

The following is checklist by Cipperman of 10 noteworthy facts about the rule that firms should consider as they come into compliance:

DOL Fiduciary Rule Compliance Checklist

  1. 1. Applies to IRAs: The rule applies to investment advice concerning IRAs, ERISA plans, and plans covered by Section 4975 of the Tax Code.
  2. 2. Best interest standard starts June 9: Beginning June 9, financial institutions and advisors to covered plans must provide advice in the retirement investor’s “best interest,” which includes a duty of prudence and loyalty.
  3. 3. BICE compliance starts Jan. 1: The extensive compliance requirements of the best interest contract exemption, which would apply to non-level fee products, are not in force until Jan. 1, 2018.
  4. 4. DOL expects changes by Jan. 1: During the transition period (June 9-Jan. 1), Labor will collect additional information from the industry to determine how compliance practices such as the use of mutual fund “clean shares” should reshape the rule.
  5. 5. Proprietary products with commissions permitted: During the transition period, firms can recommend proprietary products with commissions so long as they satisfy the best interest standard.
  6. 6. Need policies and procedures: Labor expects firms to adopt policies and procedures necessary to ensure compliance with the best interest standard.
  7. 7. Robo-advisors can rely on BICE: Robo-advisors may rely on the BICE during the transition period to ensure compliance with the rule.
  8. 8. Investment advice narrowly defined: Investment advice, for purposes of the rule, does not include plan information or general financial, investment and retirement information.
  9. 9. Can rely on written representations from intermediaries: The rule does not apply if an independent fiduciary provides written representations (including negative consent) that the fiduciary is a bank, insurance company, BD, RIA, or independent fiduciary managing at least $50 million.
  10. 10. DOL will focus on compliance over enforcement: Labor says it will prioritize compliance over enforcement during the transition period so long as firms work diligently and in good faith to comply with the rule.

Web Brokers Win a Major HealthCare.gov War

May 17, 2017 | By Think Advisor


CMS prepares for the Trump administration's first ACA open enrollment period

If the Affordable Care Act public exchange system survives Republican efforts to change the ACA, private health insurance agents and brokers may get to play a much bigger role in selling exchange plan coverage.

President Donald Trump's Centers for Medicare & Medicaid Services says it will let web broker entities that meet CMS data security standards collect HealthCare.gov enrollment information from consumers and enroll consumers directly in exchange plan coverage, and the ACA premium tax credit subsidy program, without passing the consumers on to a separate HealthCare.gov enrollment system.

The Center for Consumer Information & Insurance Oversight, the CMS unit that manages HealthCare.gov, announced the new policy today, in a new batch of guidance. CCIIO officials hope to make direct enrollment available for the upcoming 2018 ACA open enrollment period, which is set to start Nov. 1 and end Dec. 15. The enrollment period would be the first to start since Trump took office.

To offer direct enrollment, a web broker entity would have to comply with CMS consumer notice rules and other rules. CMS would have the authority to suspend a web broker entity that appeared to be violating direct enrollment program rules at any time.

The new CMS guidance would have a direct effect only on firms that work with HealthCare.gov, and only on firms that have registered as web broker entities with HealthCare.gov.

The guidance could have a much broader indirect impact. Retail agents and brokers compete head to head with web brokers on many occasions, but, on other occasions, they use the web broker entities' systems to sign clients up for HealthCare.gov coverage.

Drafters of the ACA created the public exchange system to give consumers a way to shop for health coverage on an apples-to-apples basis, and to get ACA premium tax credit subsidies.

Some states run their own ACA exchange programs. The U.S. Department of Health and Human Services, the parent of CMS, set up HealthCare.gov to provide public exchange enrollment and account administration services in states that are unable or unwilling to do the job. HealthCare.gov now handles individual exchange plan enrollment for 39 states.

HealthCare.gov has been giving the companies that register for its web broker entity program some ability to connect to HealthCare.gov systems, but the web broker entities have been fighting for the ability to enroll consumers directly in HealthCare.gov exchange plans since before the system came to life, in October 2013.

Scott Flanders, the chief executive officer of eHealth Inc., put out a statement celebrating the new CMS guidance.

"We'll be reviewing the guidance with CMS to clarify specific details, but we're enthusiastic about the change of direction," Flanders says in the statement.

Flanders' company is the parent of eHealthInsurance.com, the oldest web-based health insurance supermarket. The creators of the ACA public exchange system copied eHealthInsurance.com, then kept eHealthInsurance.com from capturing much of the new individual major medical sales traffic the ACA created.

Jeff Smedsrud, the co-founder of HealthCare.com, says in another statement that the HealthCare.gov policy change could improve the quality of the individual major medical market, by making buying health coverage online quicker and easier.

"Because enrollment will be quicker, those who want, but don't need, health insurance will be more likely to buy," Smedsrud says.

That shift could increase sales to young, healthy consumers, Smedsrud says.

New York State Caps Health Commissions at 4%

May 10, 2017 | By Think Advisor

The new policy applies to individual and small-group products

New York state regulators have acted to protect the health coverage market there against a potential threat to stability: the possibility that insurers might use high commissions to get more than their fair share of the state's individual and small-group major medical business.

In 2018, the state will limit individual and small-group health insurance producer commissions and fees to 4% of the premiums.

Troy Oechsner, the state's deputy superintendent for health, told health insurers, managed care companies and other coverage providers about the 2018 producer compensation cap in a memo issued Monday.

Health Insurance Innovations reported first-quarter gains in revenue, earnings and policy counts.

New York already caps health maintenance organization plans' commissions at 4%, Oechsner writes in the memo.

"Because New York’s health insurance market is best served by fair competition among all issuers, commissions and other fees should not be structured to give issuers an unfair market advantage," Oechsner writes.

Regulators have decided to impose a 4% cap on the producer compensation paid by all coverage providers, including insurance companies, to ensure a level playing field and market stability, Oechsner writes.

Agents and brokers in other states have been complaining in the past two years about carrier moves to reduce or eliminate producer compensation, not welcoming efforts by carriers to use high commissions to increase individual or small-group major medical sales.

James Schutzer, the legislative committee co-chair at the New York State Association of Health Underwriters, who is a benefits consultant at J.D. Moschitto & Associates Inc. in White Plains, N.Y., said he was not aware of any carriers in the state paying more than 4% for individual or small-group major medical business.

Michael Capaldo, NYSAHU's media chair, who is the owner of Michael Capaldo Employee Benefits in Coram, N.Y., said he has heard of one carrier that offers a small-group commission bonus that can push the total commission rate over 5%.

Capaldo and Schutzer said the new 4% commission cap announcement came as a surprise.

"We're not really sure what prompted this," Schutzer said.

"I've not heard any discussion of this being an issue," Capaldo said.

Producers should not be thinking about the issuers' commission rates when helping clients choose coverage, Capaldo added.

"We're supposed to be looking at it from the perspective of what's in the best interest of the client," he said.

Representatives from the New York Department of Financial Services were not immediately available to comment.

DOL Fiduciary Rule Winners and Losers

April 3, 2017 | By Think Advisor

Industry observers argue over the effects of the rule whether it stays intact, is modified or killed as Labor secretary nominee Acosta weighs in

Labor Secretary nominee R. Alexander Acosta at his confirmation hearing on March 22  Labor Secretary nominee R.

As the Department of Labor at press time continued to grapple with whether to delay the effective date of its fiduciary rule (the consensus: a delay from the original April 10 date to June 9), industry players and lawmakers were busy telling Labor in comment letters why such a delay was warranted — or not. Editor's note: On March 29, DOL sent to the Office of Management and Budget its final rule requesting a 60-day delay to the implementation date of its fiduciary rule.

While the jury is still out on the fiduciary rule's ultimate form, industry observers agree that there will be definite winners and losers — be they products, industry players or consumers — post Labor's decision to either modify the fiduciary rule or eventually kill it. R. Alexander Acosta, President Donald Trump's Labor Secretary nominee, appeared before the Senate Health, Education, Labor and Pensions Committee, which oversees Labor, for his confirmation hearing on March 22.

Acosta said during the hearing that, if confirmed, he would follow Trump's Feb. 3 directive to review the rule. “There is an executive action that directs how DOL will approach this [fiduciary] rule,” Acosta said in response to a question by Sen. Elizabeth Warren, D-Mass. Warren queried Acosta on whether, if confirmed before the 60-day request to delay the rule is finalized, he would “promise to stop” the delay.

Said Acosta: “I [...] support following executive actions from the president, who will be my boss.”

Warren probed further, asking Acosta, “Generally, do you support this [fidcuary] rule? Do you think this rule is a good idea?”

Acosta replied: “With respect, the rule goes far beyond simply addressing the standard of conduct [of] an investment advisor.”

Sen. Lamar Alexander, chairman of the HELP Committee, said in his opening remarks at Acosta's hearing that the Obama administration issued “130% more final rules” than the previous administration's Labor Department, citing the fiduciary rule, which he said “makes it more expensive for the average worker to access investment advice.”

Acosta noted during his testimony the executive order issued by Trump that “each Cabinet officer must review all rules and make determinations if they should be revised.” DOL “has been ordered to review all rules.”

During that review, “high on the list will be to protect workers with appropriate rules,” he said.

Acosta added: “We would enforce all rules that are in affect pending that review” of rules ordered by Trump.

When queried on his overall “big picture” view of regulation, Acosta replied that Trump “has ordered that we eliminate regulations that are not serving a meaningful purpose,” adding that “we need to free up small business” in order to create jobs.

Acosta was introduced during the hearing by fellow Cuban-Americans, Sens. Marco Rubio, R-Fla., and Ted Cruz, R-Texas. Rubio called Acosta a “brilliant, brilliant legal mind with a deep knowledge of labor issues.”

Cruz, who attended law school with Acosta and has known him for 25 years, cited Acosta's academic accomplishments but noted that he's also “a man of character, who takes very serious fidelity to the law and to the Constitution and has a passion for justice.”

A speedy confirmation process was anticipated, as an executive session was to be scheduled for committee members to vote on Acosta's nomination a week after his confirmation hearing.

Editor's Note: The Senate Health, Education, Labor and Pensions Committee voted 12-11 on Thursday to support Acosta's nomination to be the next secretary of Labor.

So which products and players will be the fiduciary winners and losers? First Up, the Courts

Opponents who have challenged the rule in the courts continued their war, though they continue to lose legal battles. The most recent blow to opponents came March 21 when the judge overseeing the case in Texas brought by nine plaintiffs — including the U.S. Chamber of Commerce, SIFMA and FSI — denied their emergency request to block the rule's original April 10 effective date.

The plaintiffs asked Judge Barbara M.G. Lynn to stop the rule from taking effect while they take their case to the U.S. Court of Appeals for the Fifth Circuit. But Lynn, who already denied their original bid to block the rule, argued in her mid-March ruling that the court “has already found plaintiffs’ position on the merits unpersuasive, two other district courts have reached the same conclusion in similar cases, and neither court has enjoined enforcement of the rules.”

Duane Thompson, senior policy advisor at fi360, noted that if Labor does decide to kill the rule, “I think the seven-year debate [over the rule] has moved out of industry circles into the mainstream to a certain extent. Fiduciary is not yet a household term, but is certainly growing in awareness.”

Arjun Saxena, financial services partner at PwC's consulting business, sees the “secular trend” of independent broker-dealer consolidation continuing whether the fiduciary rule remains intact or not. “We see a bunch of players in the independent broker-dealer space and retail broker-dealers feeling the squeeze and being forced into consolidation, like insurance brokerages — it's a secular trend,” Saxena said.

Ultimate losers on the product front include higher-cost share classes and 12b-1 fees as well as equity indexed and variable annuities, Thompson opined, with Saxena adding that while the number of mutual funds will continue to dwindle, new share classes will be available.

Even if the fiduciary rule is repealed, wealth managers continue to “prune their fund list,” Saxena said. The Share Class Issue

The new “T” mutual fund share class “has a uniform front-end load and 12b-1 structure across fund families,” Saxena said, noting that the share class was created by asset managers “specifically to make it easier for [brokerage firms] to offer mutual funds within commission-based transactional retirement accounts, within the constraints” of the BIC exemption.

However, he said, “introducing these onto their mutual fund platforms requires some proactive effort by the [brokerage firms] to onboard new CUSIPs to their fund platforms, changes to their billing systems, advisor training, etc.” Also, “some manufacturers have not added this share class to their offerings.”

Adopting the “T” share class would, he said, “cause some negative revenue impact to [brokerage firms] and to advisors, though the figure is less than what the headline differences in front-end loads would suggest.”

Furthermore, voiding the DOL rule and the BICE requirements would mean advisors “handling retirement accounts under a brokerage construct would not be deemed ERISA fiduciaries, and their conduct would continue to be governed by suitability requirements.” Thus, he said, it is unlikely that “we would see much uptake for the new ‘T’ share class by [brokerage firms] or by advisors.”

If the rule moves ahead, “advisors will be deemed ERISA fiduciaries for any and all retirement accounts where they are ‘providing advice,’ and specific rule requirements (for example, right of private action) increase the risk for potential lawsuits,” he said.

So registered reps “will look for tools that allow them to continue serving those clients at acceptable economics, while containing the compliance risk.” A Robo-Advice Solution?

Digital advice capabilities, Saxena suggested, would offer a way for brokerage firms to serve low AUM retirement clients by allowing them to deliver individualized advice in a scalable and economically viable way.

Jon Stein, founder and CEO of Betterment, told Labor in a comment letter that the “positive changes” in the investment industry since the rule's passage, “such as reductions in fund fees and changes to conflicted service models,” could disappear if the rule is “watered down” or delayed. “For the benefit of the millions of Americans saving for retirement,” Stein said Labor should allow the fiduciary rule to go into effect in April.

In his comment letter, Financial Engines CIO Christopher Jones told Labor that investors would be the losers if it failed to maintain “strong protections to ensure that all Americans have access to unconflicted investment advice.”

With more than 92 million individual investors now responsible for managing their own retirement assets, Jones wrote, “there has never been greater demand for high-quality investment advice.”

In a statement released by the Financial Services Institute, CEO Dale Brown argued that Labor's March 1 decision to delay the rule was a “critical step in protecting retirement savers’ access to advice, products and services. […] We will continue to work with the administration, and through the legal process, to repeal and replace this rule.”

12 Worst Financial Advisors in America: 2016

Oh, the web those scammers weave to get a fast buck.


Here are some of the dirtier dozen from 2016

March 27, 2017 | By Think Advisor

Oh, the deceitful web scammers weave to make a fast buck. From stealing from the elderly to conning pro athletes, 2016 had its fair share of fraud charges and prison sentences against scammers who acted as investment advisors. And the bar was set low: One fraudster had already been kicked out of the industry and declared bankruptcy, yet still managed to raise funds from gullible investors. Another scammed his mother. As usual, Ponzi schemes were abundant. All have something in common: They all lost their clients a ton on money.

Each year ThinkAdvisor searches through the Securities and Exchange Commission and Financial Industry Regulatory Authority enforcement actions as well as local news outlets to find some of the worst advisors of the year.

Many of these were finally sentenced this year for earlier charges, and others are pending sentencing. There were many fraudsters to choose from, but here are some of the dirtier dozen from 2016:

12. Joe Bonnett, $1.3 million

Jerome “Joe” Bonnett Jr. of Nebraska had his investment advisory registration revoked in May after the state’s banking and finance department stepped in stating he failed to account for $1.35 million of client funds and charged him with first-degree forgery and insurance fraud. But Bonnett saved the state some money: While he was out on bond he committed suicide.

 

11. Michael Donnelly, $2 million, 8+ years

Michael Donnelly of Pennsylvania was found guilty of bilking “elderly and unsophisticated clients” of $2 million that he took for his own personal use, including car payments and his kids’ private-school tuition. President of Coastal Investment Advisers of Wilmington, Del., when he committed the fraud, Donnelly was sentenced to 99 months in prison and was banned for life from the securities industry.

 

10. Bradley Smegal, $5 million, Pending

Wells Fargo had a bad 2016, but one of its former investment advisors, who it fired in 2011 and who was permanently barred form the securities industry by FINRA in 2012, still claimed to be with the bank while bilking clients. Bradley Smegal faced two counts of securities fraud for allegedly stealing more than $5 million from clients and making “Ponzi-type payments” to investors. Apparently, background checks weren’t a priority for clients as Smegal filed for Chapter 7 bankruptcy in 2013, claiming Rolex watches, Cartier gold bracelets and a Mercedes-Benz as assets, and liabilities including money owed previous clients.