In November, rumors were spreading that proposed new rules from the U.S. Department of Labor to ensure fairness among dealers of retirement products might extend beyond variable annuities (VAs) to their fixed-indexed counterparts.

"There's been a lot of concern recently," says Rhett Owens, a commercial litigation attorney at Burr & Forman, in Birmingham, Ala. "People may or may not have resigned themselves to the fact that VAs are going to be subject to this 'best-interest contract exemption,' as it's called, but if indexed annuities get lumped in under that BICE, it will be a sea change."

He's referring to a new kind of Prohibited Transaction Exemption that the proposed rule would create.  Basically, it would require firms to commit to putting clients' interests first. Companies could continue to set their own compensation policies, but must first provide clients with full disclosure, including any conflicts of interest.

Indexed annuities have become extremely popular. Typically, they promise guaranteed lifetime income and upside potential equivalent to what many VAs offer, but with the added benefit of downside protection. What's missing from that understanding is that they aren't securities at all.

Stan "the Annuity Man" Haithcock, a broker and commentator based in Ponte Vedra Beach, Fla., pointed out in a recent column that indexed annuities are actually fixed annuities with a call option on an index. They were launched in 1995 to compete with CD returns, not the stock market.

"They are insurance products," stresses Owens. "It will be interesting to see how they're going to be regulated if they're in the same regulatory category as VAs."  

But others seem to be betting that won't happen. "What we're hearing is that indexed annuities may be exempt," says Thomas Fross, wealth advisor and partner at The Villages, Fla.-based Fross & Fross Wealth Management.

Fross sees the industry ramping up its indexed annuity options, perhaps in anticipation of new business. "If you're an insurance company that specializes in VAs, you can't help but be nervous about the new regulations. Why not address this concern by ramping up indexed annuity options for qualified accounts? Especially if they will be exempt from the best-interest rule," he says.