A senior executive with the top-selling fixed indexed annuity (FIA) insurer in the U.S. said the Department of Labor might pull FIAs out of the most restrictive exemption when sold in retirement accounts.
Regulators added FIAs to the Best Interest Contract Exemption in the final version of a fiduciary rule, or “Conflict of Interest” rule, published April 6, because they are considered complex. The BICE requires hefty disclosures and a signed contract with clients.
The change caught the industry by surprise since FIAs were not included in the BICE in the draft rule issued last year.
In a conference call with analysts, Dieter Wemmer, chief financial officer of Allianz, suggested that FIAs might be dropped from the BICE just as quickly as they had appeared.
“It could happen that the fixed index annuity business is dropping off this list again, because it came also at the last moment,” Wemmer said in response to a question from an analyst.
Allianz Life Insurance of North America has its headquarters in Minneapolis. It is a subsidiary of the Munich-based financial services giant Allianz SE.
Last year, its FIA sales soared 33 percent to $53 billion, a record, according to Wink’s Sales & Market Report.
They were the best-selling fixed annuity product category last year in an otherwise flat annuity market, according to LIMRA Secure Retirement Institute.
Allianz was the No. 1 seller of FIAs with 14.5 percent market share last year and in the fourth quarter of 2015, the company’s Allianz 222 annuity was the best-selling indexed annuity for the fourth consecutive quarter, Wink’s also reported.
Allianz develops and distributes a variety of FIAs.
In addition to its Allianz 222 blockbuster, it sells Allianz 360, 365i, Essential Income 7, Core Income 7, Signature 7, Master Dex X and Endurance Plus fixed indexed annuities.
Rule Could Foster 'Opportunity'
How the rule will affect future sales of FIAs is anyone’s guess, but Wemmer put a positive spin on the far-reaching regulatory framework issued by the DOL April 6.
Proprietary sales channels in which insurance agents are under contract to sell Allianz products “should help us to drive actually the volume, and we feel that overall the fixed-index annuity market will not get smaller,” Wemmer said.
Sales of FIAs “could still grow with the current version of the DOL rule and we see ourselves not as disadvantaged to participate in this market,” he also said.
Many executives with insurance companies have told analysts over the past three weeks that in the world of insurance distribution independent agents who are going to have the most difficult time selling products under the DOL’s restrictions.
The restrictions require a financial institution to certify on behalf of agents that insurance and annuity contracts the agents sell are in the best interest of a client.
Some insurance company executives, however, have raised questions as to whether the certifying financial institution referred to in the DOL rule is a manufacturer or a distributor of an insurance contract.
In the insurance world, independent agents sometimes report directly to the insurance company. At other times, the agents report to a wholesaler or marketing organization, which then reports to the insurance company.
Insurance companies with proprietary distribution networks, over which insurers have more control, are likely to find it easier to acknowledge than an agent has conducted a sale in the best interest of a client.
“So the whole story about what is the final rule is not yet over and it is still under discussion,” Wemmer said.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.
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Can this really be true? What does Allianz Germany know about DOL and US financial product distribution. Might there have been something lost in translation here? The DOL cannot by law just add and subtract stuff from their regulations. The DOL’s public relations campaign has been very impressive starting before the rule was final. Might this be part of the PR campaign intended to stifle the legislation and litigation against the rule? I’m going to watch for the “clarification” perhaps even later today.
Hi Paul,
Thanks for the viewpoints. The translation is correct here. In fact, Timothy Hauser, assistant secretary of the Department of Labor, said this week that the DOL will make changes to the rule if problems arise during implementation. To what extent those changes might be, I guess we’ll have to wait and see.
Take care,
John Hilton
senior editor
Amen. The DOL wrote the reg…they can change the reg. If I understand the process correctly, the change would have to go through the exact same process as the original rule, but since the industry may have grounds to sue the DOL as it pertains to this issue (with the precedent being the SEC’s unsuccessful attempt in the courts to have FIA’s classified as a securities product), it would behoove the DOL to make this change, which should sail right through without alot of argument (except from the likes of the CFP’s and some consumer groups, who do not believe the regs went far enough).
Allianz SE is the world’s:
31st largest company1
3rd largest money manager2
Largest company in the diversified insurance industry3
Allianz in North America includes Allianz Global Investors and PIMCO, one of the world’s leading fixed-income managers.
They know a thing or two…
I think it is good to have FIA’s under the fiduciary rule umbrella. I’ve been on a lot of conference calls about DOL’s rule impact on MuFu’s to VA’s to managed money. If FIA’s have a viable space in planning, I think they should have the same rigor as other vehicles especially if the “promise” is that the will outperform fixed or current assumption vehicles.
I agree on the level playing field .the DOL is not like the SEC which controlls resitered products the DOL thrust to is protect retirement invdstors regardless of product type.So lets stop delay and get on with product redesign.If you get 1% level comp on an EIA its an even field.
and by the way 1% for 10 years is still 10% gross.
The issue is around who the Financial Institution is. If an insurance company distributes through independent agents, they would be on the hook for the fiduciary responsibility, but how can they assume liability when they don’t have visibility or oversight into what else the agent has access to? I really don’t see how you can sell FIAs through IMOs under the new model unless there is a B/D in the middle – and didn’t we already cover that these are not securities?
Reasonable comp applies to all products now, and that doesn’t mean it necessarily has to be levelized, unless competitive pressures drive it that way, which they may well do. Distributors need to break down how much work they do upfront vs ongoing in order to be able to justify front loaded comp to their customers.
Regarding the original article, I have no idea where Allianz’s strong statement is coming from. It reads like wishful thinking. Yes, the DOL said they would consider changes. But they purposely did not make an IMO a Financial Institution, because they are not regulated like the other orgs are. I hope they can find a 3rd way though. I really don’t understand why everyone thinks the risk is higher for the consumer on FIAs vs FAs. They both have surrender charges and are both subject to the SNFL. I could argue that FIAs have less risk because they have a better chance of outpacing inflation. Some say living benefits make them riskier – you can put those on an FA too. Some say exotic indices. If I don’t understand where the insurance company declared rate comes from, why is an index worse? I know you can argue both sides of this, I’m just saying that I don’t think risk evaluation is as straightforward as some people think.
As one who also has tried to attend as many phone conferences and read every little piece of DOL news available, it’s interesting that the advisers who make fee only money support this rule while those who rely on 100% commish, highly despise it. As an IAR who does half my business on the comp. side and the other from a flat advisory fee, I have noticed that others that operate in a similar fashion don’t support nor oppose this rule but rather are really upset from the aspect that a non-insurance / non-securities entity has made itself the know-all when it comes to not only the TYPE of planning advice we advisers give but then are telling us what we can and can’t make (commission or fee) for our services. It amazes me that most of my peers are lost on this fact. Very similar to what a prior poster mentioned with the whole “FIA’s should be treated as securities” fiasco. Really? If you are/were the type of adviser who would routinely tell a client that you are “investing in this index or that index” then you are the ones this DOL rule was created for. Wasn’t that the main reason the SEC went after FIA’s in the first place? It was the way insurance agents (not necc. securities lic. folks) marketed the products…UN-ethically. If you are an ethical adviser, why do we need more rules, regulations, and restrictions in an industry that is already highly policed? Connect the dots folks. look at the amount of money that was “rolled” out of retirement accounts post 07-08. Look at the amount of money flowing (see this Allianz article above for added confirmation) into EIA/FIA products because your day trade broker that has an office on every street corner is in it for trade commissions only and the fact that the work based 401K has terrible fund choices for the worker thus one of the reasons to roll out at retirement… then look at the major W.S. investment bank outflows, leverages, and loss ratios, and then lobbyist connections; One can surmise that this rule is nothing but a “legal” attempt to keep the dollars in the hands of a few (them) and away from the masses (us). It’s also interesting to read how this rule even came about several years ago and the type of plea’s that were made to the current administration. Just wish more of us could see this whole thing for what it really is, instead of taking stances from a product pay out perspective. Side note – Just curious how the DOL thinks that a 1% fee per year is so much cheaper for the client vs. 5% upfront commission? Are they saying that ALL clients of advisers only stay with an adviser for 5 years? If they want to get technical, which I assume they are trying to be, how is a 5% upfront payout more expensive than a client who is with me for 10 years at 1% fee per year plus fund fees (let’s say another 1%) then if I use a B or C share – let’s add in, for ex., another .25% per year…. How is that ETHICAL placement? Maybe it’s as simple as them telling us that they don’t want FIA’s anywhere near qualified money?… I don’t see M.F.’s or sngle stk products getting talked about whatsoever. It’s always based on insurance products when it comes to all the rules with DOL.
As an advisor who has been on the wholesaler and retail side of the business and worked for a few of the companies mentioned, the financial perks. aka trips, cash, etc should be disclosed more prominently perhaps via BICE. Secondly, with 30,000 indices currently patented and the FIA industry trying to back test a bunch of them, it is extremely difficult, to explain something like a floating rate index linked to LIBOR without talking about a security. Who are we kidding as we try to put off the inevitable once again in subscribing to securities oversight. I just wish, it cold be at a quasi state level like a VA as currently written by the DOL
Kevin, while I agree 1000% that if it walks like a duck, etc. – as one of my wholesaler’s who’s been in the IMO business for over 25 years asked me: “How hard would it be to do a one sheet that all FIA carriers would be required to produce in EASY to read and understand language stating that this product is NOT a security, is NOT invested in ANY security, will NOT perform like the described security, and is NOT owned by client as far as equitable ownership is concerned, etc., etc. and required the client to sign at onset of account – at delivery of account – and would even be sent to the client once a year as a reminder with or without additional signatures of acknowledgement.”
Sure, it’s currently in the very, very fine print in places but a standard one pager that is FINRA or State Ins. comm. or State D.F.A approved would squash the need to have more oversight and regulation on this particular product. Why do the powers that be need to spend millions when it could be a simple fix that would be so inexpensive for the carriers to implement? Just more of the many wonders that those of us who have put way more than a decade of our lives into this industry ask ourselves daily as we continue to shake our heads.
I find it so funny that fee based advisors always put down commissioned based agents as unethical. I am commissioned based and see clients every day that I sold a product to 10 to 15 years ago and still meet and service their account. I explain it this way,” Have you ever had your house painted? Did you pay the company by the hour or the completed job?” The one by the hour could drag his feet and make it a cash cow. The one doing it by the job, could easily rush and do a poor job.’ It all; comes down to TRUST. I have been in sales for over 40 years and I know I am not the smartest guy on the block, but I get clients all the time from fee based advisers because they say they TRUST me or were referred by a good friend that says,”You can TRUST this guy.”
The word fiduciary is just a word. We all should be working in the clients best interest, are you?
GJB
Problem is Ethical is not in everyones vocabulary. What about a commissioned “salesman” who sold an annuity inside a Roth IRA?
Under the current Administration, government agencies can do what ever they want. Your best solution to all of this is a Republican President and a Republican Congress. With this we might have a fighting chance to stop all this from going forward.
Why not protect the consumer? Greed and unethical behavior thats why.
This reason for the rule has nothing to do with fiduciary standards. The rule is another attempt by the brokerage Cartel on WallStreet to get rid of or greatly damage the FIA products and industry. They are not happy that they lost in court after years of trying to get this categorized as a security. The Supreme Court ruled it an insurance product and a fixed Annuity. This new Fiduciary rule is a back door attempt with the same goal in mind. I just hope the insurance companies have a strong enough lobby to shut WallStreet up for good.