The CEO of a top fixed indexed annuity (FIA) carrier on Thursday raised serious questions about the viability of supervising independent insurance agents involved in the sale of FIAs under the Department of Labor’s fiduciary rule.
The liability associated with the rule’s Best Interest Contract (BIC) could cause carriers to pivot away from independent insurance agents and toward broker-dealers and banks instead, said John Matovina, president and CEO of American Equity Investment Life Holding.
In the independent agent channel, supervisory financial institutions such as insurance companies risk legal exposures that “we’re very likely not interested in,” Matovina said during the company’s first-quarter earnings call Thursday.
With the bank and broker-dealer channel, insurance carriers serve as a product manufacturer only and the banks and broker-dealers take on the institutional supervisory responsibilities on behalf of individual agents.
“So they will be addressing the liability exposure and determining whether or not they want FIAs in the product mix that they have available for their advisors to sell," Matovina said.
Agent Supervision at Issue
Matovina also said it would be difficult to envision his company supervising independent agents selling competing FIAs.
“We also have serious questions about whether or not we could exercise the proper oversight of those agents given that they are independent and could be selling for multiple distributors, so how are we going to exercise oversight of an agent selling an Allianz policy?” he said.
American Equity Investment Life Holding, based in West Des Moines, Iowa, sells life insurance and fixed annuity products through several subsidiaries. The company finished 2015 as the No. 2 seller of FIAs in the U.S., according to Wink’s Sales & Market Report.
More than $53 billion worth of FIAs were sold last year in the U.S., and about 60 percent of those FIA sales were sold through the independent agent channel, according to Wink.
Matovina’s comments are among the first from a leading executive at a top FIA carrier regarding the impact of the DOL’s new fiduciary rule since a final version of the rule was released April 6.
The rule, designed to protect retirement investors, places a higher burden on agents and brokers selling FIAs and variable annuities, products with comparatively high commission structures, than it does on agents and brokers selling fixed annuities.
Opponents of the rule say it will drive thousands of agents and advisors out of the business and leave many middle-market investors without valuable retirement advice at a time when retirement savings are at historic lows.
In response, groups like the U.S. Chamber of Commerce and the National Association for Fixed Annuities appear to be preparing for legal action to amend the rule before the first set of implementation clauses kick in next April.
Sweetening Fixed Annuities
Barring any changes to the rule, Matovina said American Equity could not envision offering simpler FIAs with a lower commission structure through the independent distribution channel as the supervisory risk for the carrier is too high.
“Right now we think the risk is too great,” he said.
If the final rule stands, American Equity would look to mitigate the disruption to FIA sales by updating and expanding the company’s menu of “traditional declared rate annuities” that offer lifetime income riders and other features, Matovina said.
Traditional fixed annuities will be sold into retirement accounts under the less burdensome Prohibited Transaction Exemption 84-24.
Analyst Mark Hughes of SunTrust Robinson Humphrey suggested carriers’ fears about incurring liabilities in connection with rogue agents is overblown.
Enforceability clauses in the fiduciary the rule cover the conduct of carriers and don’t refer to agents, he said.
How can carriers be held responsible for the behavior and product selection done by the agent when agents aren’t really mentioned in the rule’s enforceability section, he asked.
On Wednesday, American Equity reported a first-quarter loss of $44.8 million compared with net income of $5.9 million in the year-ago quarter, following a $28.4 million charge in connection with deferred acquisition costs.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected]
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