DOL Delay Loosens Vise On Annuities

An 18-month delay in implementing key parts of the Department of Labor (DOL) fiduciary rule has eased its vise-like grip on insurers and annuity distributors, insurance company executives told analysts.

Abating regulatory pressure around annuity transactions also should give life insurers and distributors more time to shape a rule in a manner that will help retirement savers, the executives said during third quarter earnings conference calls.

“I think this pause plus the distance from June 9 is beginning to ease the impact of the DOL from a sales standpoint,” said Dennis R. Glass, president and CEO of Lincoln Financial.

Before the June 9 implementation of the fiduciary rule's initial clauses, advisors and distributors told insurers they wanted to continue selling life and annuity products, said Eric Steigerwalt, president and CEO of Brighthouse Financial.

The ebbing of the weekly and daily responsibilities of staying abreast of the rule means advisors can spend more time structuring guaranteed income programs for clients instead of dotting the i’s and crossing the t’s.

“I’m pretty sure if you were to talk to some of the distributors, they’d say yes, it (the fiduciary rule) is not so much our focus on a daily or weekly basis at this point so it’s going to help going forward,” Steigerwalt said.

Brighthouse surpassed analysts’ third-quarter earnings estimates in part on the strength of annuity sales. The company was one of many life insurers posting third-quarter earnings that surpassed expectations.

Compared With a Year Ago, (Again) Winds of Change

A year ago, insurance company executives and distributors were scrambling to reconfigure technology infrastructures, adapt products and implement personnel procedures to meet an April 2017 deadline for a rule reviled by advisors.

The rule makes it harder for advisors to sell some retirement and annuity products, but consumer protection advocates say it holds financial advisors to a best interest standard, which only benefits investors.

Donald J. Trump’s victory at the polls a year ago, however, blew into the fiduciary landscape like a warm Indian summer breeze as the administration called for a delay in the implementation from Jan. 1, 2018, to July 1, 2019.

Last spring, insurance executives blamed the rule for confusion and distraction as distributors and advisors steered money away from annuities.

Marker Moving in Lockstep Tells a Tale

A telling statistical marker of the fiduciary rule’s retreat surrounds the volume of annuity sales  into qualified and nonqualified accounts. In the spring, sales into qualified and nonqualified accounts appeared to be following different tracks, but those tracks have narrowed once more.

“At one point the qualified sales growth was drifting away from the nonqualified sales,” Glass said. “That seems to now be more in lockstep, so that would be an indication that some of the DOL effects are less important.”

Indeed, second quarter variable annuity sales into qualified accounts dropped 16 percent to $11.5 billion compared to the second quarter last year, LIMRA Secure Retirement Institute reported.

In contrast, second quarter variable annuity sales into nonqualified accounts rose 5 percent to $8.4 billion over the same period, LIMRA reported.

This was a sign that the fiduciary rule was affecting the mix of sales of variable annuities into the two categories of accounts, analysts said.

A Forecast Upgrade

Last month, LIMRA SRI revised its annuity sales forecast upward in light of the rule delay.

New sales of individual fixed and variable annuities are forecast to grow 5 percent in 2018 due to the 18-month delay, LIMRA reported.

In the spring, LIMRA forecast a 5 percent drop in overall annuity sales in 2018.

In drafting the fiduciary rule, regulators pushed insurers and distributors to develop and sell more fee-based products so that advisors weren’t so dependent on commission-based sales, which consumer advocates say run a risk of benefiting the agent over the investors.

The industry complied, and dozens of new fee-based products hit the market over the past 18 months.

But in many cases, a commission-based sale remains in the best interest of investors. Lincoln Financial intends to move forward with developing products that offer investors choices in how they want to compensate an advisor.

Often, fulfilling the best interest mandate of the fiduciary rule means selling annuities on which advisors reap a commission, Glass said.

“So — there's a lot to see happening over the next 18 months.”

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].