Primerica, Inc. (NYSE: PRI), a leading distributor of financial products
to middle-income households in North America, announced today that it
filed a comment on the Department of Labor’s (DOL) Conflicts of Interest
Proposed Rule (”Proposed Rule”). The Proposed Rule would expand the
definition of "fiduciary" under the Employee Retirement Income Security
Act (ERISA). The Company’s comment letter is available online at http://www.primerica.com/DOL-Letter.
Glenn Williams, Primerica CEO said, “Our investment products and
principles fit hand-in-glove with the primary financial need of most
middle-income families, which is the need to establish a long-term
saving plan for retirement. We are committed to serving this
often-overlooked market, and our goal is to always act in the best
interest of our clients. Since the Proposed Rule was released, Primerica
has thoroughly analyzed it to determine its impact on our clients and
our operations. We have regrettably concluded that millions of
middle-income families will be unintentionally harmed if the DOL’s
Proposal is enacted in its current form. We are hopeful that the DOL
will amend the Proposal in a manner that allows Main Street families to
continue to receive sound financial education along with a wide range of
investment and savings options.”
Primerica is uniquely qualified to recognize and comment on the
potential impact the Proposed Rule could have on middle-income
consumers. Since its founding in 1977, Primerica has served the
middle-income market, and at the end of 2014, Primerica insured more
than 4 million lives and had over 2 million client investment accounts,
including more than 1.2 million IRAs. The Company’s typical clients are
middle-income families, defined by Primerica as households with an
annual income of $30,000 to $100,000, which represents approximately 50%
of all U.S. households.
As is widely known, most financial services companies focus on the more
affluent markets and have abandoned middle-income families due to the
relatively higher costs and lower profitability associated with
servicing smaller investment accounts. However, Primerica’s variable
cost distribution model, which is structured for high volumes of low
initial and subsequent investments, allows the Company to provide
exceptional products and service to this critical market.
Proposed Rule Will Disrupt Retirement Savings
for Middle-Income Americans
Primerica agrees with the DOL that firms and their representatives
should act in their clients’ best interests, and doing so is critical to
our business’s success. However, the Proposed Rule is overly broad,
contains very narrow exceptions, and would have the unintended
consequence of depriving middle-income consumers – the very people the
rule purports to help – of desperately needed retirement guidance from
regulated financial professionals. We anticipate that the Proposed Rule
will have the effect of limiting access to investment advice for the
middle-market and decreasing tax-deferred savings options for these
savers. Primerica’s vast experience has shown that in the absence of
face-to-face financial help for middle-income families, the country’s
retirement savings crisis will undoubtedly worsen.
The Proposed Definition of Fiduciary is Too
Broad
The Proposed Rule greatly expands the scope of who is a fiduciary and
when fiduciary status begins and ends. Primerica believes that the
Proposed Rule is unnecessary and contains significant legal flaws, and
recommends that the DOL withdraw the Proposal. But, if the DOL continues
to advance the Proposed Rule, the Company believes that substantial
revisions are necessary to preserve middle-income families’ choices and
access to financial and investment advice.
Specifically, the DOL should revise the proposed definition of fiduciary
investment advice to (1) retain key elements of the current
“five-factor” fiduciary definition including the mutual understanding
element, which is critical to allowing clients and their representatives
define their relationship, (2) provide for a meaningful “seller’s
exception” for retail investors, and (3) preserve investment education
by broadening, not narrowing, the education exception.
Best Interest Contract Exemption is Unworkable
as Proposed
With such an expansive definition of fiduciary investment advice, and
without meaningful exceptions for sales and education activities
directed to retail investors, the Proposed Rule makes prohibited
transactions relief necessary to preserve commission-based brokerage
services. As stated in Primerica’s comment letter, the Company finds the
Best Interest Contract Exemption (“BIC Exemption”) drafted by the DOL to
be completely unworkable. In fact, the requirements of the BIC Exemption
are so complex and burdensome that it is not administratively or
operationally feasible. Primerica believes the Proposed Rule will
require broker-dealers to fundamentally restructure their IRA businesses
to avoid a need to rely on the BIC Exemption, resulting in higher
minimum account balances, reduced investor choice and ultimately, lost
opportunity to accumulate meaningful retirement savings on a
tax-deferred basis by millions of hard working Americans.
Should the DOL continue to advance the Proposed Rule, the Company
believes it is critical that a manageable exemption be proposed. In its
comment letter, Primerica provides extensive detail on what it believes
would be necessary to make a BIC Exemption operational.
Primerica is Committed to Serving Middle-Income
Families
Primerica’s commitment to helping middle-income families achieve
financial independence is unwavering, and the Company will work to find
ways to continue to serve this market should the DOL’s Proposed Rule be
finalized as proposed. Primerica would most likely seek to offer
investment solutions that fall outside of the BIC Exemption, such as
moving clients with larger investment portfolios into managed accounts.
Also, the Company could consider working with a small group of providers
to offer a limited list of investment alternatives that are acceptable
outside the framework of the BIC Exemption, which we believe would, over
time, be economically consistent with current profitability levels.
Absent other appropriate options, Primerica could potentially offer
taxable accounts for smaller investors.
About Primerica, Inc.
Primerica, Inc., headquartered in Duluth, GA, is a leading distributor
of financial products to middle-income households in North America.
Primerica representatives educate their Main Street clients about how to
better prepare for a more secure financial future by assessing their
needs and providing appropriate solutions through term life insurance,
which we underwrite, and mutual funds, annuities and other financial
products, which we distribute primarily on behalf of third parties. In
addition, Primerica provides an entrepreneurial full or part-time
business opportunity for individuals seeking to earn income by
distributing the Company’s financial products. Primerica insured more
than 4 million lives and had over 2 million client investment accounts
at December 31, 2014. Primerica stock is included in the S&P MidCap 400
and the Russell 2000 stock indices and is traded on The New York Stock
Exchange under the symbol “PRI”.
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