Allianz FMO Proposes FINRA-Style Oversight of Insurance Agents

By Cyril Tuohy

InForce Solutions, a field marketing organization for the largest seller of fixed indexed annuities in the U.S., is proposing a similar structure used by broker-dealers as a way to supervise independent agents.

Broker-dealers are registered with and supervised by the Financial Industry Regulatory Authority, or FINRA, a self-regulatory organization.

The supervisory structure would allow InForce, an FMO for Allianz Life Insurance North America in Minneapolis, to review sales material and processes used by InForce agents.

InForce is one of six marketing organizations that applied to the Department of Labor to become a “financial institution,” which would allow for the sale of commission-based fixed indexed annuities by independent agents.

In its application, InForce states that it "will develop and maintain a formal supervisory structure, modeled after the structure employed by a FINRA-registered broker-dealer, adapted appropriately for insurance-only licensed agents.”

Agent supervisors will have “a minimum” of three to five years of securities, broker-dealer or branch office experience, the application said. Supervisor compensation will not be “directly or indirectly tied” to InForce sales volume.

Supervisory tasks may include a review of sales material and processes used by InForce agents and the periodic review of agents’ business practices, annual training and implementation of a supervisory and compliance manual, the application stated.

FINRA, a securities industry-funded watchdog, is best known for its BrokerCheck database, a public reference for securities brokers.

InForce application documents were filed with the DOL’s Office of Exemptions Determination July 14 by the law firm of Drinker, Biddle & Reath on behalf of Brian B. Peterson, CEO and chief manager of InForce.

Seven marketing organizations -- field and independent marketing organizations -- have filed with the DOL for “financial institution” status and several more applications are in the pipeline, said Bruce L. Ashton, a partner with Drinker Biddle.

Supervision at Heart of DOL Interest

Earning the designation of financial institution would clear the path for independent agents to sell commission-based insurance and retirement products under the Labor Department’s Best Interest Contract Exemption, or BICE.

But DOL regulators want to know how IMOs are going to supervise those independent agents who are responsible for the bulk of the sales of FIAs, a popular product that offers retirees a better return than bank savings.

“The most important aspect is what each of the (IMO) entities say about how they are going to supervise the agents that are going to work for them and whether an IMO can serve as a financial institution,” Ashton said in an interview with InsuranceNewsNet.

Some insurance companies have said they will not sign the BICE because, the companies feel, they cannot adequately supervise independent agents. InForce, based in the Atlanta area, is a wholly-owned subsidiary of Allianz Individual Insurance Group.

Allianz Individual Insurance Group is a wholly-owned subsidiary of Allianz Life Insurance of North America, and how the company proposes to meet DOL requirements to become a financial institution will be closely watched.

Allianz was the No. 1 seller of FIAs last year with a 14.5 percent share of a market that racked up more than $53 billion in sales last year, according to industry tracker Wink’s Sales & Market Report.

The company’s Allianz 222 was the top selling indexed annuity for four consecutive quarters last year, Wink said.

FIAs remain a top product line in the annuity industry with 2016 sales forecast to reach $60 billion this year, a 10 percent jump from 2015, according to industry statistics.

Other FMOs that have applied to the DOL are Clarity 2 Prosperity, Gradient Insurance Brokerage, Legacy Marketing Group, Financial Independence Group, Futurity First Financial and, most recently, Brokers International, an FMO located in Panora, Iowa.

Allianz declined to comment on the InForce application.

Regulators Interested in Compensation Designs

DOL regulators, who want to wring as many conflicts of interest out of the sale of financial products into retirement accounts as they can, want to know how insurers plan to compensate FMOs and how the FMOs in-turn will compensate agents.

In the case of InForce, agent commissions will be paid directly by the insurer for sales of their products, and the FMO “may collect its compensation for services provided either directly from carriers or Allianz Distribution Group (ADG) FMOs.”

“Each carrier and ADG FMO will agree not to pay any direct or indirect compensation, or provide any sales or other financial incentive or reward (or contest or prize) to any IFS Agent, except as specifically approved in advance by IFS,” the application stated.

Allianz distributes annuities through more than one marketing organization.

According to documents filed by another organization, Legacy Marketing Group in Petaluma, Calif., level compensation for the sale of FIAs would apply to what wholesalers pay retail agents.

The goal is to have agents earn the same amount for similar products – a 10-year annuity, for example – sold by different companies, Ashton said.

But gross commissions, also known as overrides, paid by insurance companies to their marketing organizations, do not have to be “level,” according to Legacy’s application.

Ashton, who filed applications on behalf of InForce Solutions, Legacy Marketing, Financial Independence Group, C2P Advisory Group and Brokers International, said he wouldn’t be surprised if the DOL issued a “financial institution” designation to qualified marketing organizations before the end of the year.

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].