States Taking The Lead On Financial Regs, LTCi
While other rulemaking efforts garnered most of the attention and opposition, Nevada lawmakers plugged along on financial advice rules that attracted scant attention.
That is no longer the case.
After the specifics were released earlier this year, industry insiders quickly realized that the broad scope of the Nevada rules make it a very tough hurdle. Some are comparing it to the late Department of Labor fiduciary rule and claim it would contribute to the death of the commission-based model.
Like the DOL rule, which was tossed out by a federal appeals court last year, the Nevada rules provide for a private right of action.
The law places fiduciary responsibilities on broker-dealers, registered investment advisors and some financial services sales representatives. Those professionals have been excluded from the existing state law covering the fiduciary duties of “financial planners.”
The Nevada Secretary of State’s office has yet to release the final rules. The law only applies to sales of insurance if accompanied by investment advice, however, the rule definitions are wide in scope, analysts say.
As written, costs of compliance are going to skyrocket, wrote Gary A. Sanders, vice president of government relations for the National Association of Insurance and Financial Advisors, and Donna Tatro Saarem, president of NAIFA-Nevada.
“The likely result of the adoption of the strict fiduciary duty found in the draft regulations — along with the responsibilities and increased operating costs that would accompany such a duty — would be that many financial professionals would no longer serve clients with modest or moderate means,” they wrote in a comment letter.
The primary concern opponents have is the potential for a “patchwork” of regulations from state to state. In that scenario, insurers are likely to conform to the toughest standards in order to do seamless business.
“To comply with various and potentially conflicting state and federal standards, firms will have substantial operational costs (legal, personnel, technology/systems) in order to ensure compliance with multiple standards,” wrote Anthony Chereso, president of the Institute for Portfolio Alternatives. “These costs will have a direct impact on the availability and cost of financial advice for investors in Nevada.”
The Nevada rules flew under the radar for three reasons:
- Quick passage: The law was introduced on March 20, 2017, and signed by Republican Gov. Brian Sandoval on June 2 of that year.
- Lack of details: Nevada essentially passed the law, then filled in the details later. An eight-page draft of the actual rules was released in January.
- Sandoval: Republicans have consistently opposed extending fiduciary standards to insurance and annuity sales. That Sandoval signed the Nevada bill was a mild surprise.
Casting A Wide Net
Under the Nevada proposal, broker-dealers and sales representatives are subject to a fiduciary duty when providing investment advice. But there’s an Episodic Fiduciary Duty Exemption for B-Ds and reps that qualify.
But reps cannot qualify for the exemption if they hold themselves out as any of the following: “advisor,” “adviser,” “financial planner,” “financial consultant,” “retirement consultant,” “retirement planner,” “wealth manager,” “counselor” or any other title the state deems appropriate.
More specifics are needed throughout the proposal, write lawyers for Stradley-Ronon, a Philadelphia law firm.
“The definition of ‘investment advice’ appears to go well beyond existing definitions and interpretations under federal law,” they state. “For example, the definition refers to both ‘advice’ and ‘recommendations’ without explaining how the terms differ and how a recommendation can amount to advice. Moreover, seemingly any information about a specific security provided to a specific client could be deemed to constitute investment advice, even such general information as price and historical performance.”
While Medicare For All is grabbing all the attention nationwide, one state quietly became the first in the nation to offer a long-term care benefit to its residents. Washington state passed the program, which would provide residents with up to $36,500 over a lifetime to pay for costs such as caregiving, wheelchair ramps, meal deliveries and nursing home fees.
More states are looking at offering some sort of public LTC benefit. And any government program to address the growing need for long-term care in the U.S. is likely to come from individual states instead of the federal government, one researcher said.
Despite the Sen. Bernie Sanders, I-Vt., proposed Medicare For All legislation that would include long-term care coverage under a comprehensive federal health plan, “there’s not going to be a federal program anytime soon,” Howard Gleckman, senior researcher at the Urban Institute, told InsuranceNewsNet.
“But I do think it is a growing concern. Looking at it on the state level, what’s interesting to me is that states are trying lots of different solutions. And that’s good because we don’t know what the best solution to this problem is.”
Hawaii enacted a Kapuna Caregivers program in 2018, giving up to $70 per day for up to 364 days for family members who serve as unpaid caregivers. Minnesota lawmakers are looking at making LTC benefits more accessible through private insurance, enabling residents to convert a term life insurance policy into a long-term care insurance policy at age 65, Gleckman said.
Illinois and Michigan are in the early stages of considering a public LTC benefit. California is looking at a ballot initiative on a public LTC program at some point.
“I think it is certainly true that many states have recognized the need for some sort of public program,” Gleckman said. “But there is no consensus on what that public program should look like. And there is certainly no consensus on how to pay for it.”
What makes the Washington state program unique, he said, is that lawmakers devised a way to fund it. “The most significant thing about the
Washington state program is not the design of this; I think the most significant thing is they were able to get a majority of the legislature to agree to raise taxes to fund the program,” he said. “That has always been the sticking point at both the federal and state levels.”
The Washington state program is funded through a monthly payroll tax on workers. Beginning in 2022, workers will pay a monthly tax of 58 cents for every $100 they earn in income.
But What Will It Mean For LTCi?
Jesse Slome, executive director of the American Association for Long-Term Care Insurance, said that public programs such as Washington state’s are negative to the industry in the short term, but could be a positive in the long term.
“In the short term, it’s negative because a government program like this will get a lot of visibility and awareness, and it will lead consumers to believe their long-term-care planning is being taken care of,” he said.
“And the reality is, for many people, that $36,500 benefit will be adequate, but it is not really sufficient for people who have more serious needs and more costly claims. A $36,500 benefit is good for home care. It’s better than nothing and most people will only need home care. But for many people who will need care for a longer period of time, it’s not an enormous benefit.”
In the longer term, state programs “are a prescription for needed change,” Slome said.
“Basically, what will happen is that at some point, if a plan like this is adopted in more states — or you see an expansion of Medicare or inclusion in Medicare For All or wherever we go —long-term care insurance will inevitably evolve into a product similar to Medicare Supplement.”
Slome predicted that if state programs continue to spread, LTCi will evolve either into something within Medicare Supplement plans or as a standalone supplement to state plans.
Meanwhile, he said, the LTCi industry will have an opportunity to redesign a product that will be attractive to consumers while supplementing government programs.
“Sometimes changes are needed in order to create the environment where change happens.”