The DOL conflict of interest rule due out today could cause additional headaches for four of the country’s largest insurers who Sen. Elizabeth Warren D-Mass. accused of misleading investors and violating securities. In a letter sent to SEC Chair Mary Jo White, Warren called for an investigation into contradictory statements made by these insurers.
Warren claims that the insurers, which include Transamerica, Prudential, Jackson Life and Lincoln Nation, on the one hand claimed that the DOL rule was “unworkable” in public comments aligning with most of the financial service industry but on the other hand told investors that the rule would not have a significant burden on their business practices. In Warren’s own words:
“But both sets of industry claims – that the proposed rule will harm them and their business model, and that the proposed rule will not harm them and their business model – cannot possibly be true. And if one these public statements is materially false, it would appear to violate long-standing interpretations of our securities laws.”
Wall Street analysts are closely watching whether financial service companies, especially annuity providers selling through proprietary distribution system, will suffer as a result of the DOL rule. The rule could significantly hurt sales or annuities in IRAs as commissions would be significantly cut and sales by advisors aligned with the insurer could be restricted.
Warren elaborated:
“The conflicting statements by corporate officials raise significant questions about whether they or their companies may have violated the securities laws. As these companies acknowledge in their own public statements, the outcome of the DOL Conflict of lnterest Rule – which will govern how they sell and invest trillions of dollars of retirement funds – is a material concern,”
To prove that the insurers violated securities laws, it is not necessary to show that the investors relied on the false statements.
While the DOL rule will have a much greater impact on financial advisors, broker dealers and providers services on 401k plans and IRAs, it will affect a plan sponsor’s and their employee’s relationships with these firms.
