18 Insurance Marketers Apply For DOL Exemption

Eighteen independent marketing organizations have applied for a special exemption to sell fixed indexed annuities under the Department of Labor’s fiduciary rule, records show. The rule takes effect beginning in April.

The exemption would grant the marketing organizations “financial institution” status. This would  allow agents under contract with the marketing organizations to sell commission-based FIAs.

Commission-based FIAs can be sold by independent agents under the DOL rule’s Best Interest Contract Exemption.

Seeking financial institution status is considered a “must have” for insurance marketers looking to recruit independent agents and advisors to sell FIAs, a market that surpassed $53 billion in sales last year.

FIAs are attractive to retired and preretired investors because principal is protected from market drops — investors cannot lose their money — but investors can earn a higher return than bank products with anemic yields in an era of very low interest rates.

Under the DOL fiduciary rule, many industry observers say smaller insurance and annuity marketing agencies and wholesalers will need to merge with larger marketing organizations to achieve economies of scale.

Small marketing agencies with no broker/dealer affiliation, no investment advisor affiliation and no green light to act as a financial institution from the DOL will likely go out of business.

Insurance Solutions to Satisfy Financial Requirements

Regulators also appear to be in favor of the IMOs buying higher errors and omissions liability limits as opposed to an actuarial solution based in reserving requirements. This is a way for marketing organizations to defend themselves and their contracted agents against future professional liability claims, the DOL records indicate.

Many IMOs are listing per-occurrence E&O limits of $5 million and aggregate E&O limits of $10 million, application materials indicate.

An insurance solution would be consistent with the professional liability umbrellas favored by Securities and Exchange Commission-regulated Registered Investment Advisors.

“That would be consistent with RIAs since RIAs don't have much of reserve requirement,” said Bruce Ashton, a partner with Drinker Biddle & Reath. Drinker Biddle is a nationwide law firm representing many IMOs in their application before the DOL.

Imposing reserve requirements followed by licensed insurance companies regulated by states — a high threshold — don’t appear in the application materials filed many of the insurance marketing companies, documents show.

Since the DOL has yet to publish final conditions for the IMOs to earn financial institution status, that could still change, Ashton said.

Listing the IMO Applicants

IMOs act as intermediaries between a dozen or more insurance companies and hundreds or even thousands of insurance agents.

Marketing companies recruit agents to sell. In exchange, agents receive marketing and compliance support from the marketing companies.

On the insurance company side, marketing companies agree to carry an insurance company’s products and in exchange receive a fee from the insurance company. Under this model, the insurer outsources distribution to a wholesaler.

The 18 insurance marketing and product development companies that have applied for a financial institution exemption from the DOL so far include:

Advisors Excel, Topeka, Kan.; Alpine Brokerage Services, Marlton, N.J.; AmeriLife Group, Clearwater, Fla.; Annexus, Scottsdale, Ariz.; Brokers International, Panora, Iowa; Clarity 2 Prosperity, Westlake, Ohio; ECA Marketing, Eden Prairie, Minn.; Futurity First Financial, Hartford, Conn.; Financial Independence Group, Cornelius, N.C.; Gradient Insurance Brokerage, Topeka, Kan.; Ideal Producers Group, Overland Park, Kan.; InForce Solutions, Woodstock, Ga.; Insurance Advocates, Kapolei, Hawaii; InsurMark, Houston, Texas; Legacy Marketing Group, Petaluma, Calif.; M&O Financial, Southfield, Mich.; Saybrus Partners, Hartford, Conn., and The Annuity Source, Bellevue, Wash..

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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