Let’s Talk Annuities: The Growing Fee-based Annuity Space

WASHINGTON -- Fee-based variable annuity accounts made up just 3.2% of all sales in 2018. That number is no doubt small compared to its commission-based counterparts, but it is growing. From 2016 to 2017, the percentage of households with fee-based accounts increased 10%.

At the Insured Retirement Institute’s Action19 conference, a panel of experts shared how new technology solutions and best interest duties are expanding and changing the fee-based space.

Regulations Shape Fee-based Products

Regulations from both government agencies and industry institutes have shaped the fee-based product model. Despite the fact that the Department of Labor’s Fiduciary rule was vacated this time last year, many firms and carriers began to implement fee-based annuity products preemptively, preparing for the rule to take effect.

In fact, much of the product design of fee-based products came from the DOL rule, said panelist Steve Kilbon of Global Atlantic.

Kilbon said the future state of these products, from a carrier perspective, could be “reactive” to future regulatory actions like the Security and Exchange Commission’s proposed Regulation Best Interest.

Saul Herrera, panel moderator and director of product development with Ebix, said the SEC’s Reg BI will continue to push the industry toward the fee-based product model.

States Create A ‘Patchwork’

The panelists also discussed the recent efforts of states such as New York and Nevada that have passed their own best interest standards while waiting for the SEC to issue a federal standard.

Edmund Zaharewicz, shareholder at Carlton Fields, called these state efforts a “burden to firms with both commission and fee-based products” and “onerous” because of the “patchwork” regulatory nation they create.

Adding to the dialogue, one member of the audience who worked for Merrill Lynch said that in New York, the company delayed the launch of its fee-based annuity products until its advisors were licensed to handle them properly under New York’s new Regulation 187.

Zaharewicz did offer a positive to the increased regulatory activity surrounding best interest and suitability standards. “These regulations will keep the space open to commission products while driving more interest in fee-based products,” he said.

Another member of the audience commented that their company isn’t seeing fewer brokerage annuities in the face of increased numbers of fee-based annuity products, indicating that both commission and fee-based annuities can and do coexist.

New Tech, New Opportunities

Preparing for a world of both commission and fee-based products, EnvestNet and FIDx shared a new platform called Envestnet Insurance Exchange during the panel discussion.

This new technology will place all information (insurance, retirement and investment products) in one place with tools and features to support suitability and compliance requirements for advisors and clients using multi-channel and omni-channel strategies. This is something the insured retirement industry has been working toward to create channels that communicate with each other rather than just with the advisor.

Rich Romano, speaker and chief technology officer at FIDx, said, “We see ourselves as the consolidator of the insurance industry.”

AdvisorNews Managing Editor Cassie Miller may be reached at [email protected]. Cassie has an extensive background in magazine writing, editing and design. Follow her on Twitter @ANCassieM.