Financial advisors may find it easier to get into the business of selling registered index linked annuities (RILAs) after a Congressional committee Thursday okayed a proposal to lower some of the market entrance barriers.
Though the investment product has been available for almost 10 years, the roiling economy –with markets down, inflation up, and interest rates rising – has buoyed the attractiveness of RILAs. In 2021, RILA sales were $38.7 billion, 61% higher than in 2020 and current growth remains strong and seemingly pinned to Fed interest rate moves.
RILAs promise growth beyond a simple fixed rate of return while providing guaranteed protection from losses in market downturns. They are a hybrid of popular fixed indexed annuities that tie performance to major market indexes. But RILAs offer a broad selection of financial options to deliver specific investment growth with greater protection. With a RILA, investors can set the maximum loss they are willing to tolerate, unlike traditional index annuities.
“RILAs are popular because they offer equity upside along with some downside protection, which is attractive to clients,” said Steve Scanlon, head of Individual Retirement at Equitable
But to capitalize on their growing popularity, financial advisors have complained the requirements are too complicated, burdensome, and unnecessary.
“To register a RILA, a company has to file similar paperwork as if they were doing an initial public offering, which requires all sorts of additional company financial information that has nothing to do with the product,” said Dan Zelinski, chief strategic communications officer for the Insured Retirement Institute, which lobbied for requirement revisions.
Those objections led to HR4865, a bill to lower barriers to retirement income products by requiring the Securities and Exchange Commission (SEC) to revise rules regarding developing and offering certain annuity products, including RILAs.
“There is a lot of confusion for clients and friction for companies when it comes to getting these RILAs to market given the current SEC disclosure and filing requirements,” Scanlon said.
The bill creates a dedicated SEC form for RILAs that would provide clients with disclosures tailored to these products, streamline filing requirements for issuing companies,” Scanlon said.
“Overall, we believe this will bill will help consumers access RILAs more efficiently and at a lower cost,” he said.
On Thursday, the US House Committee on Financial Services approved the bill after an amendment was added to align it with a similar Senate bill.
Several financial industry lobbying groups, including the American Council of Life Insurers, the Committee of Annuity Insurers, Finseca, Insured Retirement Institute, and the National Association of Insurance and Financial Advisors.
In a letter to the committee, the organizations said current regulations prevent RILAs from being used by more consumers who desire an annuity product that provides some protection of their investment principal from market loss, while also allowing participation in market growth.
“A new registration form more closely tailored to this product would contain only the relevant information consumers need to make an informed choice about purchasing a RILA, eliminating extraneous information that currently makes the filing process more onerous and understanding the product more difficult,” the letter said.
“The House Financial Services Committee’s vote to advance the Registered Index-Linked Annuities Act (H.R. 4865) is a step toward giving consumers greater access to innovative products tailored to meet specific retirement needs,” said Wayne Chopus, IRI president and CEO. “Consumer demand for RILAs continues to accelerate because they can bring balance to retirement portfolios by allowing participation in market growth while reducing exposure to market loss, helping savers reach retirement goals. IRI will now work to bring this bipartisan measure to the House floor quickly.”
Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].