The Death of an Insurance Salesman

Commentary

The holidays are a time to reflect and take stock of the year past and look forward to the year ahead. At Americans for Annuity Protection (AAP), we’ve learned A LOT!

Let’s review our most important lesson and set a plan for the new year.

At AAP and its affiliate, AssessBEST, Inc., we talk to a lot of folks from our industry every day. And, despite the DOL Rule’s effective date of June 9, 2017, we’ve seen a surprising range of attitudes and activity.

At one end, we have agents and marketing organizations in absolute denial about the changes required to ensure they are following impartial conduct standards. Most of these folks believe they just need to drop an extra form with the client. Many simply and delusionally believe the Rule “will go away.”

And yet, we also work with agents and firms who have been busy preparing a new business model that incorporates practices and standardized processes to make impartial recommendations serving their client’s interest ahead of their own. These are the businesses that will thrive in 2018.

Even agencies and marketing firms with no obligation or requirement to supervise (they are not financial institutions) are looking for a system of supervision and oversight to ensure their agents comply with the Rule. Some are changing because they see increased sales opportunities using standardized practices - and some to protect their own businesses. Some are doing it for both reasons.

If you read the wiki-version of “The Death of a Salesman” you are likely to get a narrow, prescriptive understanding of the play’s message. But it is really more complex and nuanced. For our purpose, two of its themes are relevant to our industry: 1). past triumphs do not mean continued success; and, 2). denying reality just postpones it.

Diversity and Certainty

Most fixed annuities and life insurance in the past have been sold by independent insurance agents and the channel has racked up impressive year-over-year growth numbers. But that is changing. Broker-dealers and banks are embracing the very popular fixed indexed annuity and becoming more open to utilizing them for diversity and certainty.

These additional channels have been growing since even before the DOL Rule. According to LIMRA, banks saw a 30 percent year-over-year increase in 2015, and independent BDs had 6 percent growth. Historically, banks and BDs favored variable annuities, but have warmed to FIAs in the last few years.

More recently, leery of the Rule’s liability threat without a supervising financial institution, carriers are looking more and more to the intermediary-supervised channels -- broker-dealers, banks and RIAs.

And, it’s not just distribution that’s changing. The rest of the world is changing, too. Even though the Transitional Rule has been extended from Jan. 1, 2018 to July 1, 2019, the Rule’s requirement for impartial conduct and disclosure is here to stay. We see increasing examples of fiduciary-driven product development and newly proposed regulation and carrier policies.

This evolution in distribution, product and regulation, along with our work on the Hill, assures AAP that there is no appetite for repeal or lessening of today’s requirements. Carriers are already requiring their agents to attest to their impartial conduct and we all know it will be tough to get that genie back in the bottle.

In addition to the unlikely “softening” of the existing fiduciary requirements from the DOL, is an increasing interest in fiduciary “harmony” from the SEC. In his testimony this fall before the House Financial Services Committee, SEC Chairman Jay Clayton told the committee the SEC is drawing up a long-awaited proposal for a fiduciary rule.

The commission has been accepting comments about a fiduciary rule, but Clayton told the House Financial Services committee that the SEC is “working on a [rule] proposal,” reports an industry trade article.

And, last, but most significantly not least, is the latest draft of an amended Suitability Model from the NAIC, which has some alarming requirements of conflict of interest and compensation disclosure. At their most recent meeting, the NAIC put forth its draft written by the chair and vice chair of the Annuity Suitability Working Group and is accepting comments until Jan. 22, 2018.

Here to Stay

While there are some significant questions and concerns with the NAIC draft, there should be little doubt that the requirements of an impartial conduct standard are here to stay.

It is time our industry fully embraces a standard of care that is compatible with fixed annuity distribution and products. Suitability isn’t enough anymore because suitability is determined AFTER the recommendation without any requirement that the agent fully assess the client’s needs and objectives BEFORE making a recommendation.

We must reward conduct that incorporates a diligent and professional process of client assessment, product analysis and recommendations that are not driven by the highest commission or override. The process must lead to an unambiguous conclusion that, first the client’s own needs are identified, and second, after product analysis, the recommendation suitable with those needs.

AAP believes this order – assess best interest needs first and the suitability second - is critical to our continued success in serving customers with fixed annuities and life insurance and keeping advisors out of the crosshairs of regulators and lawyers.

Americans for Annuity Protection has long been advocating that change is necessary for the survival of annuity distributors and insurance agents and advisors. We must alter business practices and reshape our client engagement and sales processes. We must embrace the change to fiduciary practices or face the consequences of increased regulatory scrutiny, carrier audits and lawsuits.

Unless our industry learns from the past and embraces today’s reality, we too will find ourselves dead like Willy Lohman.

Kim O’Brien is a 35-year veteran of the insurance industry specializing in guaranteed annuities and life insurance. She is the current CEO of Americans for Annuity Protection and Founder of AssessBEST, Inc., a sales and compliance software system. Visit www.AAPnow.com or www.AssessBEST.com for more information.

This article is provided for educational and informative purposes only and not for the purpose of providing legal advice. Readers should consult with their own legal and compliance counsels to obtain guidance and direction with respect to any issue or question. Contact Kim at [email protected].

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