Evaluation Tool to Help Advisors Meet DOL Rule

By Cyril Tuohy

Cannex Financial Exchanges, a provider of annuity pricing and illustration data, is launching a new tool to help advisors compare the benefits of variable and fixed indexed annuities.

The annuity benefit comparison tool is expected to launch in the first quarter of next year, Cannex said, or roughly the same time the Department of Labor's fiduciary rules begin to take effect.

The tool is considered an important element in helping advisors determine whether one annuity is more suitable for a client than another, Cannex said.

Variable and fixed indexed annuities offer features at different commission rates and buyers often find it difficult to compare one annuity to another.

“Our approach allows advisors to evaluate the insured performance of these products to assist them in making the appropriate selection to meet client’s financial planning objectives,” said Gary Baker, president of Cannex USA, in a news release.

DOL Rule a Driving Force

New DOL rules raising investment advice threshold and the sale of financial products into retirement accounts begin taking effect April 10. Advisors must sell products in the best interest of a clients or face legal liability.

As the April date approaches, data companies and vendors are preparing new tools and features to help advisors meet compliance requirements.

With the election of President-elect Donald Trump, it remains possible the DOL rules will be delayed, and possibly repealed at a later date. However, many companies have spent millions to comply and may opt to continue on that track.

The fiduciary standard makes it more difficult to justify an annuity sale and companies are looking for ways to show that their sale was in the best interest of a client, said Keven Loffredi, senior product manager of annuity solutions with Morningstar.

The Cannex tool imposes standardization measures to determining the value of one annuity over another by evaluating guarantees embedded within the annuities to determine the economic benefit in light of a client’s investor profile, Cannex said.

“This innovation brings greater transparency to the annuity market,” Baker said.

The approach provides advisors with the ability to compare the performance of benefits across other annuity categories including single premium immediate annuities (SPIA), deferred income annuities (DIA) and qualified longevity annuity contracts (QLAC).

The tool also evaluates new deferred annuity purchases compared with exchanges or replacements between two annuities, Cannex said.

FINRA regulators earlier this year announced record fines against variable annuity sellers in connection with exchanges, also known as “churning."

The tool's “objective, analytic techniques” will help advisors evaluate “sophisticated products,” such as variable annuities and fixed indexed annuities, said Moshe A. Milevsky, Cannex board member and annuity expert.

Service Hosted by Cannex

The software tool, hosted by Cannex, will be made available to individual reps and advisors by their broker-dealers, Baker said.

“Typically, the broker-dealer would make it available to the individual, but 99 percent of our business is business-to-business, so they can put our services wherever they want — in sales or in compliance,” Baker said.

He compared the annuity evaluation engine used by different broker-dealers to Intel chips powering Macintosh-based computers or Windows-based PCs – “the power plant that people can plug into,” he said.

Users pays on a per-transaction basis.

Sales of variable annuities dropped 22 percent to $79.4 billion over the first three quarters of this year compared with the year-ago period, according to LIMRA Secure Retirement Institute’s U.S. Individual Annuity Sales Survey.

By contrast, fixed indexed annuity sales rose 22 percent to $46.9 billion over the same time period. FIAs guard against the loss of investment principal while at the same time offer investors the opportunity to share in market gains.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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].