Lincoln Financial: FIA World Now A ‘Long Bore Through A Hard Board’

The CEO of a large variable annuity seller said Thursday he expects VAs will have a market advantage in dealing with the Department of Labor's fiduciary rule now that fixed indexed annuities were also added to the best interest contract standard.

Lincoln Financial, the No. 3 seller of variable annuities in the U.S. last year, may broaden its share of the retirement fund market because of an exemption attached to the rule issued last month, said Dennis R. Glass, president and CEO of Lincoln National Corp.

“It may prove out that our distribution partners may need to trim shelf space and focus on fewer, higher quality companies, which I believe would be an advantage to Lincoln over the long term,” Glass said.

Variable annuities, regulated as a security, are sold through broker-dealers and Lincoln sold $11.5 billion worth of them last year.

By contrast FIAs are sold mostly through commission-based independent insurance agents and last year were the fastest-growing category in the fixed annuity world.

But broker-dealers qualify as a financial institution under DOL and are authorized to sign off on a fiduciary promise, known as the Best Interest Contract, to annuity buyers on behalf of agents and advisors. However, insurance wholesalers, known as independent marketing organizations (IMOs), are not considered financial institutions under the rule.

Insurance companies do qualify as a financial institution but some insurance company executives this week cast doubt on whether insurers would be willing to sign contracts for FIAs sold by independent agents.

Long Bore, Hard Board

There’s no question that the sale of indexed annuities through independent agents is going to be more challenging under the new rule.

Selling nonregistered products, “is going to be a long bore through a hard board for companies to get where they need to be from a compliance perspective,” Glass said.

“I would also say that I think there's a couple of sentences in the DOL rule that may be, could be — or interpretations that could be tweaked — to lessen that challenge. But, let me be absolutely clear, it's a much harder road on FIAs through nonregistered distribution.”

Asked by analysts whether the DOL’s new “Conflict of Interest” rule would mean lower commissions for the sale of variable annuities, Glass said it is not clear that the reaction of the DOL rule is translating into lower commissions.

Pressure on fees and more transparency are forcing commissions lower independent of the regulatory framework, Glass said.

A “long-term contract’s up-front compensation may very well be the answer as to what the best interest is,” he said.

On Wednesday, Lincoln National reported first-quarter net income of $201 million on revenue of $3.2 billion, the company reported.

The company also reported net income of 82 cents per share, the company also reported.

Earnings, adjusted for investment costs, came to $1.25 per share, short of the average of nine analysts surveyed by Zacks Investment Research who forecast earnings of $1.48 per share.

Analysts also forecast revenue of $3.4 billion.

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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