Post-DOL Design: Simpler Will Be Key

Simplicity was the operative term as a panel discussed the potential impact of the Department of Labor fiduciary rule on annuities.

Participants in the Insured Retirement Institute annual meeting panel, "Regulation, The Mother of Invention? Innovation Post-DOL Fiduciary," said the drive to simplicity can start with how annuities are described by the industry, all the way down to advisors.

"We should remove the word 'complicated' from our lexicon," said Stephen Truso, senior Vice President, U.S. Bancorp Investments.

"Sophisticated!" chimed in David Rauch, chief operating officer and general counsel, Annexus.

Truso said he liked the term but went on to say that regulators and others had seized upon "complicated" and "complex" as synonymous with negative.

Complex is unpopular not only with regulators but also with advisors, said Bernie Gacona Sr., vice president, director of annuities, Wells Fargo.

"The more things you have to explain, the more likely you are to lose the client," Gacona said.

A product manufacturer on the panel agreed and offered other perspectives and features.

Paula Nelson, head of annuity distribution, retirement, Global Atlantic Financial, preferred the term, "guaranteed lifetime income" and the perspective of "tax efficiency."

Her company also is seeking simplicity in annuity design. Global Atlantic is considering fee-only options, as are many other companies.

During the conference, other company executives said they were looking at a range of not just fee-only annuities, but also no-fee annuities.

The no-fee choice might be an attractive choice for registered investment advisors, who have typically avoided annuities altogether. These annuities would allow fee-only advisors to apply fees on an assets under management basis or an overall advisory fee.

But insurance company executives admitted that annuities are still a hard sell with RIAs.

On the panel, Truso of Bancorp welcomed Nelson's direction with new products.

"It's good to hear a manufacturer looking to simplify, because it's been the latest 'shiny object'," Truso said. "They might not even get to the client. It just gets their attention."

Nelson agreed, saying, "Gimmicks will go away. They draw negative attention."

Rauch of Annexus also said he likes the direction toward simplicity, but cautioned against allowing regulators and legislators to push them too far.

"I am concerned that the first push to simplicity will be too strong," he said, explaining that could stall sales. "We should push back on that."

Many references have been made during the conference to the pending class-action lawsuits after the DOL rule. So much so that Rauch promised not to mention the word "class-action" again during the discussion.

But he was called to discuss it in response to a question from the audience on when to expect lawsuits to begin.

Because it would take time to gauge the effect on clients, it would take a few years, he replied. The earliest lawsuits could be filed in late 2019 or 2020.

He said the best way for advisors to protect themselves is in their processes: "It has to be a consistent, repeatable approach."

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected].

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