Changes and Opportunities with DOL’s Proposed Fiduciary Duty Rule

During the recent National Association for Fixed Annuities (NAFA) Annuity Distribution Summit in Coral Gables, Florida, I, along with CreativeOne president Mike Tripses, engaged with other industry leaders in our continued efforts to fight against the Department of Labor (DOL) rule given its potentially devastating impact to the $20-trillion, qualified money market.

NAFA Executive Director Chip Anderson reflected on how change was a common theme throughout the NAFA Summit. As he noted, with “critical compliance concerns to the pending DOL fiduciary duty rule, the only certainty within our marketplace is change. While we cannot predict what tomorrow may bring, we can work together to more successfully prepare for it.”

CreativeOne has provided substantial support and resources to NAFA to fight against this unworkable rule to preserve the ability for you to continue delivering outstanding client benefits afforded through fixed and fixed indexed annuities.

Change is inevitable and comes from many different angles, and the fixed annuity space is no different. Change may come from a variety of causes, such as consumer needs, market dynamics, or by regulatory rule. I’m confident our annuity market will survive and predict it will thrive in a post-fiduciary-duty-rule landscape.

While this may seem a rather contrarian perspective, particularly if you read the traditional consumer and trade press, I believe this because of the strong fundamental value propositions of fixed annuities: guarantees and principal protection. What other products in this industry can promise guaranteed return without loss of principal along with the ability to provide guaranteed lifetime income, all from highly regulated counterparties that have a consistent track record of paying on these promises?

While I do believe there may be a small chance this new rule will not survive congressional and litigation challenges, I predict three significant areas will be impacted should the rule pass:

  1. Product design. More focus will be on product transparency and consumer value. Expect to see changes in surrender charges, rider charges, indices and new carriers entering the annuity space. Fixed annuity disclosures could look more like variable annuities and training requirements will be enhanced. Suitability departments will be forced to scrutinize sales and incorporate a more holistic viewpoint of clients’ total needs.
  2. Compensation. The optics associated with heaped commissions may force trail options, which will have much greater net present value. Expect full disclosure of commissions and other non-cash compensation. Also, don’t be surprised if carriers discontinue incentive trips and other sales-based rewards. I do think new compensation and services programs will emerge, and the role of the independent marketing organization (IMO) partner will become even more relevant.
  3. Distribution model. IMOs that can deliver true value and support will become critical in a post-rule world. “Robo-advisors” may spring up and absorb some of the annuity market; however, I think we’re years from this platform becoming viable. I do believe technological support and solutions to provide ease, transparency and value for both the agent and client will become the norm in order to meet the “best interests” standard. Compensation pressure will impact all distribution partners, with greater impact on smaller-level agencies and producers who struggle to evolve. I also foresee consideration of vertical alignment of distribution from the carrier to the end consumer.

Necessity is the mother of invention. Change is difficult to accept and many run from it. However, those who embrace it and forge ahead by seeking new ways to succeed are most often the winners. This new rule is no different, and we believe there will be tremendous opportunities to flourish selling fixed annuities. CreativeOne is proactively exploring ways to seize change whether this proposed rule is adopted or not.



CP-0653 – 2015/10/28

The views expressed in this article are those of Chris Conroy personally and do not necessarily reflect those of CreativeOne or NAFA.

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