With the new year imminent, many advisors are scrambling to prepare for a proposed rule change from the U.S. Department of Labor (DOL) that's set to be announced in the first quarter of 2016.

It could have "a profound effect on the entire financial industry," declares William Van Sant, a senior vice president and managing director at Univest Investments, in Souderton, Pa. "Until now, variable annuities have remained exempt from certain fiduciary standards via the Prohibited Transaction Exemption 84-24 under the Employee Retirement Income Security Act of 1974 (ERISA).  The new DOL proposal would revoke that exemption."

The idea, ostensibly, is to implement "full disclosure of what commissions are being charged and how much in fees the advisor is getting," says Rhett Owens, a commercial litigation attorney at Burr & Forman, in Birmingham, Ala.  "This could be a good thing.  VAs are investment vehicles and should be treated as such.  [But] I do think it's going to create a price war."

The new regs could also "cause insurance companies to become more innovative," suggests Thomas Fross, a partner and wealth advisor at The Villages, Fla.-based Fross & Fross Wealth Management.  "We expect more companies to introduce fee-based VAs, too."

L-share VAs, he predicts, could be eliminated by the spring of 2016.  They offer greater liquidity -- in the form of shorter surrender periods -- than the more common B-share VAs.  If you sell or even withdraw more than a certain amount of a B-share annuity in the first seven years, you incur a penalty. The pricier L-share annuities usually have three- or four-year surrender periods.  But they charge trailing mortality, expense and administration (MEA) fees of, on average, 1.65 percent -- which is significantly higher than the average B share's 1.15 percent MEA charge.

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