AmeriLife Files for FI Status Under DOL Fiduciary Rule

By Cyril Tuohy

AmeriLife, a large insurance marketing organization (IMO) with 120,000 insurance agents, has applied to allow agents to sell fixed indexed annuities under a U.S. Department of Labor exemption.

The request by the Clearwater, Fla.-based IMO, which maintains business relationships with 250 insurance companies in all 50 states, makes it eight IMOs that have applied to sell FIAs under the exemption.

“The requested exemption would apply to transactions for AmeriLife Agents selling fixed indexed annuity products through AmeriLife contracts and utilizing the AmeriLife platform,” said Timothy O. North, chairman and CEO of AmeriLife, in a letter to the DOL.

The letter, dated Aug. 28, is addressed to Brian Shiker in the DOL’s Office of Exemption Determination.

A message left Thursday with AmeriLife was not returned.

Under new fiduciary rules that raise investment advice standards, insurance agents are prohibited from selling commission-based life and annuity products unless IMOs with which agents have a relationship are granted "Financial Institution" status by the DOL.

The rule's Best Interest Contract Exemption allows agents to accept "reasonable" commissions on recommendations for investment or insurance products to retirement plans or individual retirement accounts, and IRAs. But it requires a contract signed by a Financial Institution.

Under the final version of the fiduciary rule published in April, only banks, insurance companies, broker-dealers and registered investment advisors (RIAs) were considered by the DOL as financial institutions.

IMOs, who have contracts with independent agents, were left out as they are not regulated in the same way. But they were allowed to apply for FI status.

Leaning Toward RIA Supervisory Structure

AmeriLife said it would supervise its agents through a “formal supervisory structure, modeled after the structure employed by an SEC-registered investment advisor, which will be adapted as appropriate for insurance-only agents, overseen by a Compliance Department.”

In addition, the company said it "has organized a wholly owned subsidiary that is in the process of becoming a SEC-registered investment advisor, which will supervise securities-licensed agents."

Agent approval, due diligence and the monitoring of FIA products made available to AmeriLife agents will be conducted by the IMO’s compliance department, AmeriLife’s application materials note.

AmeriLife is also proposing errors and omissions coverage limits of at least $5 million per occurrence and $10 million in the aggregate, the application said. Also, it would be party to no less than 10 “Top-Level” wholesale distribution contracts to sell an insurance company’s products.

Regulators are expected to scrutinize the applications for how IMOs propose to supervise the agents they recruit. As IMOs file documents with the DOL, proposed supervisory models are coming into sharper focus.

Other IMOs applying to sell FIAs under the exemption, Brokers International in Panora, Iowa, for example, have proposed to do so under a model akin to that used by a FINRA-registered securities broker-dealer.

Most FIAs, one of the top-selling annuity categories in recent years, are sold by independent agents. More than $53 billion worth of FIAs were sold last year, according to Wink’s Sales & Market Report.

Second-quarter indexed annuity sales were $15.5 billion, an increase of more than 3 percent when compared to the previous quarter and up nearly 28 percent when compared with the same period last year, Wink’s reported last month.

Separately, LIMRA Secure Retirement Institute’s sales survey reported second quarter fixed indexed annuity sales of $16.2 billion, 30 percent higher than prior year and surpassing prior quarterly sales records.

Supervisory Models in Sharper Focus

Hartford-based Futurity First Financial, which owns three IMOs, has proposed setting up a separate sales and suitability desk staffed by insurance agency veterans and supervised by senior managers and a compliance officer.

Legacy Marketing Group, an IMO based in Petaluma, Calif., has proposed more of a hybrid model between an RIA and broker-dealer.

“The most important aspect is what each of the (IMO) entities say about how they are going to supervise the agents that are going to work for them and whether an IMO can serve as a financial institution,” said Bruce L. Ashton, a partner with the law firm Drinker Biddle, in a recent interview.

Drinker Biddle is representing several IMOs in their applications before DOL.

Eight IMOs have filed for financial institution status: Clarity 2 Prosperity, Gradient Insurance Brokerage, Legacy Marketing Group, InForce Solutions, Financial Independent Group, Futurity First Financial, Brokers International and AmeriLife.

More IMOs are expected to file for financial institution status and IMO executives interviewed earlier over the summer said they expect an answer from regulators by the end of the year at the latest.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].