1. The Changing Regulatory Landscape The DOL Proposal and Impacts to Business Practices x

2. What’s Behind the Department of Labor’s Proposal?

3. x As stated on the United States Department of Labor website, “To address conflicts of interest in retirement advice saving middle- class families billions of dollars every year.”

4. Reasons behind DOL Proposal It goes on to state “Loopholes in the retirement advice rules have allowed some brokers and other advisers to recommend products that put their own profits ahead of their clients' best interest, hurting millions of America's workers and their families.” *As stated on the United States Department of Labor Website.

5. Reasons behind DOL proposal “Our current system is one where firms can benefit from backdoor payments and hidden fees often buried in fine print if they talk responsible Americans into buying bad retirement investments—with high costs and low returns— instead of recommending quality investments isn't fair.” *As stated on the United States Department of Labor Website.

6. The US Department of Labor believes the following benefits will be achieved by implementing the new proposal: x

7. DOL Proposal Aims to Eliminate 1. Save Tens of Billions of Dollars for Middle Class and Working Families: A detailed Regulatory Impact Analysis (RIA) estimates that families with IRAs would save more than $40 billion over ten years when the rule and exemptions are fully in place. *As stated on the United States Department of Labor Website.

8. DOL Proposal Aims to Eliminate 2. Eliminate Backdoor Payments & Hidden Fees Often Buried in Fine Print Are Hurting the Middle Class: Conflicts of interest cost middle-class families who receive conflicted advice huge amounts of their hard-earned savings. Conflicts lead, on average, to about 1 percentage point lower annual returns on retirement savings and $17 billion of losses every year. *As stated on the United States Department of Labor Website.2.

9. DOL Proposal Aims to Eliminate 3. The Department of Labor will protect families from conflicted retirement advice:. The Department issued a proposed rule and related exemptions that would require retirement advisers to abide by a "fiduciary" standard— putting their clients' best interest before their own profits. *As stated on the United States Department of Labor Website.

10. The DOL’s Primary Objectives Protect customers and their retirement savings. Expand fiduciary responsibility. Impose a uniform best interest standard. Eliminate conflicts of interest. Full disclosure of compensation.

11. Fiduciary Responsibility and Best Interest x

12. Who Will Have Fiduciary Responsibility? The DOL proposal puts all financial professionals, planners and advisors who provide any advice on IRAs or retirement plans into a fiduciary status.

13. New Definition of Fiduciary Any individual receiving compensation for providing advice that is individualized or specifically directed to a particular plan sponsor, plan participant or IRA owner for consideration in making a retirement investment decision. Providing general plan or product information would be deemed investment advice.

14. z Fiduciary responsibility will also include all personnel who work with retirement plans or accounts of any kind and they will be required to disclose any compensation they receive from their work, such as increased commissions from selling indexed annuities. An example of this is most carriers will pay their vendors anywhere from 4% to 8% for the sale of these products, and the money to cover this cost ultimately comes out of the client’s pocket in many case. *Information from Indexed Annuities: How the DoL's Proposal Impacts Them By Mark P. Cussen, CFP®, CMFC, AFC, January 06, 2016

15. What Does Best Interest Mean? The DOL’s proposed rule is to mitigate conflicts of interest that exist between firms, advisors and their clients. It addresses concerns that firms and advisors benefit from recommending their product or service even though it may not be in the best interest of the customer. * Information from “3 outstanding questions about the DOL's proposed fiduciary rule BY BEN YAHR, JUSTIN SINGER, DAN BENDER, RANJIT JASWAL, JANUARY 8, 2016. LIFEHEALTH PRO

16. How is Best Interest Determined? The proposal appears to use cost as the main indicator of best interest. This linkage may not always make sense, as in the case where consumers need protection against longevity more than the lowest-cost investment products. Similarly, in times of market volatility, clients may see value in having (and be willing to pay for) access to an advisor who can provide perspective. * Information from “3 outstanding questions about the DOL's proposed fiduciary rule BY BEN YAHR, JUSTIN SINGER, DAN BENDER, RANJIT JASWAL, JANUARY 8, 2016. LIFEHEALTH PRO

17. Documenting Best Interest At a minimum, navigating the rule behind best interest will require advisors to create and implement a documented process to demonstrate they acted in their client’s best interest. This process must show a rationale or justification for their recommendations and prove compensation was not a factor.

18. Compensation vs Best Interest x

19. Reasonable Compensation It’s anticipated the market will determine what constitutes reasonable compensation. Firms must be able to articulate the cost for each service they offer and provide a documented breakdown to their customers for review and approval.

20. Compensation Disclosure Supporters of the DOL Proposal feel financial professionals who must disclose the commissions they earn on these products will have a more difficult time selling them, therefore offer other investment vehicles with lower expenses and greater growth potential, such as indexed mutual funds or exchange- traded funds (ETFs). *Information from “Meeting Your Fiduciary Responsibility” By Jerry Sais Jr. & Melissa W. Sais, Investopedia

21. Conversations Will Change How will agents and advisors handle conversations regarding rollovers, withdrawals and other distributions under the new fiduciary rules?

22. Conversations Today Today: Conversations with customers on distribution options from retirement plans or IRAs are not considered fiduciary advice, even if accompanied by a recommendation as to where the distributions would be invested. *Information from “3 outstanding questions about the DOL's propoed fiduciary rule BY BEN YAHR, JUSTIN SINGER, DAN BENDER, RANJIT sJASWAL, JANUARY 8, 2016. LIFEHEALTH PRO

23. Conversations Under New Rule Under the Rule: The DOL would reverse its prior position so rollover and withdrawal recommendations would now be considered investment advice therefore must comply with new fiduciary standards. *Information from “3 outstanding questions about the DOL's propoed fiduciary rule BY BEN YAHR, JUSTIN SINGER, DAN BENDER, RANJIT JASWAL, JANUARY 8, 2016. LIFEHEALTH PRO

24. Annuity Conversations The new fiduciary rule under the DOL Proposal would change how annuities are categorized, which impacts the way they are regulated. Variable and Indexed Annuities would now fall under the same regulatory rules.

25. Annuity Conversations This is a drastic change from the past and is critical as more than 50 percent of annuity transactions involve qualified money. The new rule will now make them subject to fiduciary standards.

26. How Will You Be Impacted? x

27. Be Prepared to Document and Disclose Documentation will be a must for all business transactions and every client interaction. The need for proof and justification of every recommendation will be required. Numerous disclosures will be required along with an analysis of every product available to the customer.

28. Sales Practices Will Change The Proposal requires public websites that disclose everything about transactions, how product are sold, all products available and compensation structures. Products offered by carriers are likely to change. May encourage carriers to make products within a particular asset class similar. *Information from Chip Johnson, Executive Director, NAFA

29. z Advisors must furnish various disclosures and projections for 1- 5 and 10 year periods based on dollar amounts of investments and potential performance PRIOR to any sales. This could impact the ability to close sales. Compensation structures and fees will need to be documented, disclosed and approved by the customer. *Information from Chip Johnson, Executive Director, NAFA

30. x Qualified and Non Qualified funds will be regulated by different agencies. The DOL will have control over ERISA covered plans and the Internal Revenue Code over other plans. A reduction in sales force. Many will leave the market due to the unwillingness to conform to new rules, the challenges with being able to market their business and the cost of complying with the new standards. *Information from Chip Johnson, Executive Director, NAFA

31. x Any and all material coming from an individual whose job is working with retirement plans on any level must fully disclose “insurance and sales material.” No exceptions regardless of content. All customers attending a seminar or presentation conducted by any financial professional will have to read and approve a disclosure outlining the ultimate objective is to obtain a sale. Representing a seminar or presentation as educational or informative will be in direct violation of the proposal.

32. How to Prepare? x

33. Step 1: Organize Educate yourself and be informed of the laws and rules that will apply to various situations. For example, fiduciaries of retirement plans need to understand that the Employees Retirement and Income Security Act (ERISA) is the primary legislation that governs their actions and what this means. Define the roles and responsibilities of all parties involved in the process. If investment service providers are used, then service agreements should be in writing. *Information from “Meeting Your Fiduciary Responsibility” By Jerry Sais Jr. & Melissa W. Sais, Investopedia

34. Step 2: Formalize Create the investment program's goals and objectives by identify factors such as investment horizon, an acceptable level of risk and expected return. By identifying these factors, fiduciaries create the framework for evaluating investment options. Select appropriate asset classes to create a diversified portfolio through a documented and justifiable methodology. *Information from “Meeting Your Fiduciary Responsibility” By Jerry Sais Jr. & Melissa W. Sais, Investopedia

35. Step 2: Formalize (continued) Formalize these steps by creating an investment policy statement, which provides the necessary detail and justification to implement a specific investment strategy. Be ready to document, document, document. *Information from “Meeting Your Fiduciary Responsibility” By Jerry Sais Jr. & Melissa W. Sais, Investopedia

36. Step 3: Implement A due diligence process must be designed, documented and implemented to evaluate all potential investments and should identify criteria used to evaluate and eliminate potential investment options. The implementation phase is usually performed with help from an investment advisor. When in the implementation phase, fiduciaries and advisors must agree upon a due diligence process when selecting investments or managers. *Information from “Meeting Your Fiduciary Responsibility” By Jerry Sais Jr. & Melissa W. Sais, Investopedia

37. Step 4: Monitor This is the most time consuming and most neglected part of the process. Some fiduciaries do not sense the urgency for monitoring but it will be critical under the DOL proposal. Periodically review reports and analyze investments' performance against the appropriate index, peer group and whether investment objectives are being met. * Information from “Meeting Your Fiduciary Responsibility” By Jerry Sais Jr. & Melissa W. Sais, Investopedia

38. Step 4: Monitor (continued) Monitoring performance statistics is not enough. Fiduciaries must also monitor qualitative data, such as changes in the organizational structure of investment managers. Understand your responsible for how funds are spent. Investment fees have a direct impact on performance and fiduciaries must ensure that fees paid for investment management are fair and reasonable *Information from “Meeting Your Fiduciary Responsibility” By Jerry Sais Jr. & Melissa W. Sais, Investopedia

39. State of Proposal There are so many unknowns with the current proposal and how the structured framework will look once it’s created, implemented and regulated. We know the proposal will be detrimental to business so it’s imperative we stand united and do our part to help stop the approval of the proposed changes.

40. What Can You Do? NAFA has shared some ways you can make an impact: Stay in formed of the issue and its progress. Write to your member of congress to express your concerns. Join NAFA and other groups working to protect your interests. Be prepared to participate in grassroots efforts led by NAFA fellow trades when necessary.