When financial planner Michelle Ford answered the phone one day, she heard the voice of a worried older gentleman. “Is there anything I should be worried about?” he asked Ford nervously about allocations in his fixed index annuity (FIA).
The man had learned that New York Attorney General Eric Schneiderman had filed a lawsuit against Barclays, the British bank, for alleged “dark pool” violations including fraud, deceit and misrepresentations to investors. Barclay’s response can be viewed here.
Dark pools are essentially private exchanges maintained by some brokers and banks for trading securities. The caller was not in a dark pool nor was he invested in Barclays stock. But he remembered that some of his FIA funds were allocated to a Barclays indexed option, so he started wondering about his FIA assets in that option.
The phone call illustrates the “public relations backlash” that occurs when bad news comes out, or when clients pick up misinformation about a carrier, said Ford, chief executive officer of LifeLong Retirement, a Bridgewater, N.J., advisory firm. They hear a familiar financial name and they start to worry.
“For me, the response always comes down to education,” she said, explaining that clients sometimes need help understanding what is happening.
The Barclays news
Other FIA advisors may be fielding similar calls about the Barclays news, since Barclays has become a popular index option over the past year.
For instance, Sheryl Moore, president and chief executive officer of Wink Inc., reported that 20 percent of total FIA sales in first quarter 2014 were allocated to Barclays indexes. That’s up from under 1 percent in first quarter last year.
The Barclays indexes are part of the rising popularity of what Moore calls “hybrid indexes.” A hybrid is essentially an index of indexes. In first quarter, about 25 percent of FIA sales went into the hybrids, according to Wink numbers.
The greatest share of the Barclays elections (nearly $2 billion) was allocated to the Barclays Capital U.S. Aggregate Bond Index of FIAs issued by Allianz, according to Wink data. Allianz has an exclusive agreement to use that index in its products until 2020.
Moore sees continued interest in using hybrid indexes. “Ten companies asked me about them in the last two months,” she noted. The carriers want to offer such options in order to provide uncapped interest crediting methodologies in their FIAs during the low interest rate/low cap environment, she said.
However, when interest rates rise, the keen interest in the options will diminish or even go away, she predicted.
Meanwhile, insurance regulators want to see carriers using indexes that consumers can easily look up online or in the newspaper. The hybrids don’t always qualify, so this could serve as a countervailing force to the recent growth.
The information hurdle can be crossed if carriers provide compliance-approved handouts that define the indexes, Moore said. She also suggested that carriers appoint a registered representative at the home office for advisors to direct customers for explanations.
A number of FIA experts contacted by AnnuityNews believe that the dark pool issue may tarnish the Barclays name for a while, but that it will have virtually no long-term negative impact on sales of FIAs having the Barclays option or on advisors’ recommending that option to suitable clients.
“Yes, another side of the Barclays business is involved in a lawsuit,” said Jack Marrion president of Advantage Compendium in St. Louis. “But it’s a separate side of that firm’s business.
“And yes, the dark pools will cause some questions, but agents will point out that this is not insurance.