Americans for Annuity Protection believes that the DOL Rule needs to be repealed first and revised second.
Repeal is necessary to remove the DOL from the process to ensure a uniform application of any new Fiduciary standard. The reason to revise is that a new standard is necessary for standardization across industries, financial licensees and financial products to ensure consumers are consistently informed and protected.
Today’s Rule is a MESS. Its patchwork approach of different requirements for different product types with conflicting disclosures for consumers looking at similar products is terribly complicated for consumers.
In addition, the Rule imposes uneven compliance requirements for licensees who are paid commissions by the company versus fee-advisors who charge extra and ask the consumer to pay out of pocket. Leaving the consumer conflicted and confused.
It is no secret that Sen. Elizabeth Warren, D-Mass., is critical of our distribution systems and the retail annuity marketplace. Last May, she took aim at the incentive programs that were available from many carriers and IMOs at the time.
Warren’s survey included only 15 firms and her staff found 13 offered non-cash inducements to sell annuities. Americans for Annuity Protection estimates there are close to 1000 firms selling annuities in today’s marketplace including insurance companies, marketing organizations and general agencies.
That means the “survey” dealt with about 1 percent of the annuity distribution and was obviously used to attempt to paint a negative view of commissioned annuity advisors.
The incentive programs that Sen. Warren showcased were carefully hand selected to showcase those with the most “shock” factor and to misrepresent how incentive programs work. Sen. Warren also did not provide any cost-benefit analysis between non-cash and cash incentives, or what replacing non-cash incentives would cost companies and, by extension, annuity owners. Could it be that non-cash incentives cost less?
This hyper-selectivity without any rigorous research parameters suggests that when purporting to support the middle-class worker (her words), she ignores the everyday, middle-class advisor who typically makes a modest living similar to 401k savers.
In addition, she ignores that most advisors must ensure they pay their staff and cover their overhead before he or she can take home a paycheck to feed and clothe their own family.
Incentive Programs Common
Incentive programs themselves aren’t the problem. There are employee incentive programs in almost all businesses – including programs for government employees like Sen. Warren.
The federal government even has an agency dedicated to incentive programs. It is called the Office of Performance Management (OPM) and its website says that “[i]ncentives and employee recognition are effective elements of hiring and retaining agency talent.”
In the same way, insurance companies and marketing organization provide incentive programs to recruit talented advisors and recognize their performance and contributions to the customers they serve. However, programs that incentivize the sale of one product or one product line over another can lead to recommendations that aren’t always best for the consumer.
Consumers need to be protected from misaligned incentives. Most advisors don’t let incentive programs drive their recommendations, but their mere existence can be a motivator for the few that favor their own financial interests over their clients.
Unfortunately, the Senator didn’t even bother to research if any consumer was harmed by these programs. The over-the-top satisfaction rate of consumers who own annuities suggests they were not and that they love their annuities regardless of how advisors are paid to introduce, educate and sell them.
Nonetheless, it is time our industry looked at incentive programs and ensured they were aligned with goals to recruit and maintain skilled and successful advisors while protecting consumers from programs that may induce a bad actor to make bad recommendations that benefit their own pockets and not their client’s.
Fast forward mid-January: Sen. Warren startled us with a letter to the DOL showing concern and empathy for the financial services industry and encouraged the Department not to delay the Rule due to the harm it would cause the very firms she’s typically against.
Sen. Warren had asked 33 financial firms whether they support delaying and rolling back the Rule. After completing a “survey” of the responses in early February, her letter to the DOL stated that she believes the industry is in no rush to see the Rule delayed or repealed and included numerous quotes to support this conclusion.
“Not true” chorused the survey respondents. The Hill reports that industry groups cried foul and charged that Warren was misleading the Department and “picking quotes out of more detailed responses to paint support for her cause, when the industry is generally opposed to the rule as it is.”
Unfortunately, Warren’s actions were used not to help inform the Rule and root out its problems, but to silence and politicize any honest critique of the Rule’s specific requirements and its unworkable and uneven application.
AAP recommends that we repeal AND revise the Rule because the rationale used to justify the Rule has always been flawed and induced by a public relations campaign that cherry-picks information, ignores facts and uses emotional levers and anecdotes to support its complex provisions.
In the end, the real experiences and needs of everyday Americans are ignored. We can’t help but note that these same tactics are explicitly prohibited in the marketing and sale of annuities and life insurance. Advisors who use fear and misleading facts are severely dealt with by regulators and the insurance companies they represent.
When a Rule of this significant size and impact on the economy resorts to misrepresentation cited as fact misleads Americans, it must be indefensible as written. We must repeal and revise so that we can write a fiduciary standard that benefits consumers and the advisors who help them.
To get it RIGHT we must start from scratch. Americans saving for retirement should expect no less and in fact their future prosperity depends on it.
Kim O’Brien is a 35-year veteran of the insurance industry specializing in guaranteed annuities and life insurance. She is the current CEO of Americans for Annuity Protection and Founder of AssessBEST, Inc., a sales and compliance software system. Visit www.AAPnow.com or www.AssessBEST.com for more information. Contact Kim at firstname.lastname@example.org.
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