BIC Vs. PTE 84-24
You may have seen that the DOL recently released 34 FAQs, most of which deal with the BIC. Perhaps you were still under the impression that a BIC was an ink pen or lighter. In this context, “BIC” (or “BICE”) is an acronym for “Best Interest Contract Exemption.”
When the DOL rule goes into effect in April, a prohibited transaction will occur when you move qualified funds into a commission-based financial product. DOL will only allow it if you satisfy the requirements of an exemption. If you recommend a Fixed Indexed Annuity, you must use the BIC Exemption. Specifically, this is a contract between a Financial Institution and your client. This contract guarantees the client that his or her advisor is acting in the client’s best interest.
On the contrary, a traditional fixed annuity qualifies under Prohibited Transaction Exemption 84-24. This exemption says that the advisor is still acting in the client’s best interest, but a Financial Institution signature is not required. More detail on BICE and PTE 84-24 are available in the Top 10 Questions Report.
As of this writing, only Insurance Companies, Banks, Broker Dealers and RIAs are considered Financial Institutions. Additionally, 18 National Marketing Organizations (NMO’s) have applied to be recognized as Financial Institutions. Some are declaring themselves as such and are telling independent agents to align their contracts with them or they will be out of business in April. That is simply not true. In reality, Insurance Companies are still trying to figure out the rule and determine proper response. Finally, DOL does not even have a formal Financial Institution application process in place for NMOs.
Many industry groups are working to develop solutions for Independent Advisors. Additional clarity around DOL is on its way. Real solutions are beginning to materialize. You will have every opportunity to evaluate and choose the option(s) that are best for you. Don’t make any changes yet. We will keep you updated of news and developments. To reiterate, you will have plenty of time to investigate and make decisions that are best for you and your practice.
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