A few state insurance regulators are continuing to push for increased disclosure of annuity agent commissions.
That became clear during a very brief exchange at a phone conference of state insurance regulators and industry experts last week. So did awareness that commission disclosure remains a dicey topic to broach.
The session had been called to continue revising the old Annuity Buyer’s Guide from National Association of Insurance Commissioners (NAIC).
It was a work session, with regulators and industry representatives going through the draft section by section, deciding on what to say here and say there. Then one of the participants pointed out that the California Department of Insurance had sent in some suggested revisions, too.
One of those suggestions turned out to be a proposal to amend a sentence on commission disclosure that had seemed to be squared away. Specifically, California Senior Staff Counsel Jodi S. Lerner had written, in a comment letter, that the sentence should say: “You [the consumer] have a right to ask how much the individual selling you the annuity will earn from the sale."
In addition, Learner wrote, “I also suggest raising this as a question in [the] section [of the Buyer’s Guide] titled ‘What Questions Should I Discuss with the Annuity Salesperson?’”
Her explanation: “Disclosure of this information is beneficial to consumers,” Learner wrote.
Those were simple enough words, but within a matter of seconds, Kim O'Brien, executive director for National Association of Fixed Annuities, objected. So did Gary Sanders, vice president of securities and state government relations, for National Association of Insurance and Financial Advisors.
The current version of the document does disclose that annuity sales persons do typically earn money from the sale of an annuity and that the buyer can ask about how this happens, O’Brien pointed out.
But both O’Brien and Sanders opposed seeing the question that California suggested being added to the question list. They didn’t elaborate. They just said “no.”
Their objection is understandable. Such a question would encourage annuity buyers to ask the agent, point blank, how much money the agent would make from the sale. Proposals to allow this have been a sore point among insurance agents for several years, especially among agents who work primarily on commission.
Many of these agents do not believe their customers have the “right”—in the sense of a legal right—to ask. Some also maintain that giving out “the number” will confuse the client, take the focus of discussing insurance protection needs, and provide clients with information that most don’t want anyhow. Others resent the not-so-veiled implication that, by working on commission, they are hoodwinking consumers into buying products that pay the most commission, even when other products would do the job as well or even better.
On the other hand, some insurance advisors have told InsuranceNewsNet that they don’t mind disclosing what they make from insurance commissions. These tend to be dual-licensed advisors. They work on both fee and commission, often through a registered investment advisory firm. They figure that since they disclose their fees anyhow, disclosing insurance comp is just part of their business model. They resent critics who say that their business model makes it so that they gravitate towards serving only higher net worth individuals, leaving mid-market customers who can’t afford high fees in the dust.
Keeping equilibrium between these opposing views will be a challenge for regulators and industry, as everyone seeks to find a common ground that is fertile for all concerned.