Principal Financial: Changes to Agent Comp in the Works

Agents and advisors affiliated with Principal Financial Group selling the insurance company’s proprietary products will be seeing changes to their compensation, insurance company executives said last week.

Independent agents selling products and services developed by the Des Moines-based insurance and retirement company will also see changes to the way they are paid, company executives said in a conference call.

Details of the changes, also known as “comp-leveling,” were not made public.

“In some of the places, we already have some comp leveling already in place, and other places, we will have to adjust,” Deanna D. Strable-Soethout, president of Principal Financial Group’s US Insurance Solutions unit.

Principal Financial President and CEO Daniel J. Houston said the “levelized commissions,” which have already “been in place for a long time,” would only marginally affect members of the Principal Advisor Network, a proprietary distribution channel.

Depending on the proprietary channel arrangement, agents are often contractually required to sell a minimum volume of products developed by the insurer.

“Levelized commissions have been in place for a long time,” he said. “And I think it's only on the margin that we've had any additional sort of compensation, and that's going to be rationalized across the entire industry."

The Principal Financial executives delivered their comments during a first quarter earnings call April 29 with analysts.

Insurance companies will be tweaking their agent and advisor commission structures over the next 12 months to comply with a new fiduciary rule issued by the Department of Labor. Important elements of the new rule take effect next April.

The rule requires that distributors of financial products into retirement accounts proceed on the basis of a fiduciary relationship and is aimed at removing potential conflicts of interest in which distributors steer clients into products because of higher commission revenue — unless distributors operate under an exemption.

Independent Channel

Unlike agents within the company’s advisor network, independent agents who choose to sell Principal’s products aren’t under any contractual obligation to do so and questions remain on whom the fiduciary obligation falls: the insurance company or the distributor?

Principal Financial executives made clear last week that the company would not accept any fiduciary obligation in connection with distributors in the independent channel as the company doesn’t sell its retirement plans or retirement plan advice on a direct basis.

That responsibility lies with other players in the distribution chain: wholesalers, third-party administrators and retail retirement benefit plan advisors, company executives said.

“It's the advisor who would be acting in the capacity of the fiduciary, in order to help them pick and choose the investments in these plans," Houston said in response to a question from analyst Steven D. Schwartz of Raymond James & Associates.

In the context of providing retirement-related education within its call centers, Principal Financial would be considered a financial institution and subject to fiduciary oversight only on a “very limited basis,” Houston said.

Institutions and retail advisors who merely dispense information without recommending a product or service, or who don’t dispense advice do not trigger fiduciary duties under the DOL rule.

Principal Financial on Thursday also reported first-quarter net income of $368 million, a drop of 11 percent from the year-ago period, on revenue of $3.04 billion.

Adjusted for investment gains, earnings came to 97 cents per share and fell short of Wall Street expectations. The average estimate of six analysts surveyed by Zacks Investment Research was for earnings of 99 cents per share.

Principal Financial lost $29.7 million in connection with investments in the energy sector in the first quarter, the company said in a statement.

Some big oil and gas companies have filed for bankruptcy protection this year in connection with the collapse in oil prices.

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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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].