The catering by insurance companies to specific broker-dealer requests on annuity product design has been a major change, and challenge, for the industry as implementation of the Labor Department's fiduciary rule draws closer.
Insurers are trying to remain flexible as product distributors weigh the annuity specifications that make the most sense for their adviser forces and clients while remaining compliant with the Department of Labor regulation, executives said Monday at the Insured Retirement Institute's annual Vision conference in Colorado Springs, Colo. The rule requires financial advisers to act in the best interests of their clients in retirement accounts.
“In the past, you'd build a product and could distribute it across hundreds of broker-dealers,” said Robert DeChellis, president of Allianz Life Financial Services.
At present, insurers are grappling with trying to “understand what the different requirements will be by our individual clients,” he said. “That's one of the biggest changes we've had so far.”
(More: The most up-to-date information on the DOL fiduciary rule)
Carolyn Johnson, chief executive of insurance solutions for Voya Financial, said seeing different product requirements from various distributors, whether annuity product features or adviser compensation requirements, “is kind of a big issue facing us.”
Although
most broker-dealers haven't publicly announced specific DOL compliance plans, some have
considered creating the same commission schedule across similar products as a way to eliminate the appearance of conflicts of interest.
That sort of approach, for example, would require some customization on the part of insurers, because distributors are the ones determining the commission schedule they feel is most appropriate for their advisers.
Paula Nelson, head of annuity distribution, retirement, at Global Atlantic Financial Co., said that as distributor partners such as banks, independent broker-dealers, regional B-Ds and wirehouses determine their best course of action, her firm has had to adjust.
“We have to be prepared to be flexible around their final decisions,” Ms. Nelson said.
Greg Cicotte, executive vice president and chief distribution officer at Jackson National, said he could envision having different commission agreements with certain broker-dealers.
"Ultimately, the broker-dealers will tell us what they want, and we as product manufacturers have to determine if we can accommodate that or not," Mr. Cicotte said.
However, as distributors better determine what their definition of "reasonable compensation" under the DOL rule, the hope is there will be product consistency and therefore less of a need to create something individual for each broker-dealer.
Bernie Gacona, senior vice president and director of annuities at Wells Fargo, said there's no question annuity product design will change as a result of the DOL fiduciary rule.
Adviser compensation through annuities, for example, is likely to come down because of the rule, he said. While Wells Fargo knows what its annuity commission schedule will look like come April 2017 when the DOL rule goes into effect, he declined to provide specifics because they could change in the interim.
Mr. Gacona and other executives also discussed the need for a simpler approach with annuities that would help investors better understand what they buy.
Wells Fargo wants to limit a lot of the choices available in variable annuities today, for example.
In today's environment, there are several choices and product specifications advisers need to describe to clients; however, with some simplification, clients are more apt to understand what they purchased, which could help avoid future litigation under the DOL fiduciary rule, Mr. Gacona said.
It's a similar process to one Wells Fargo performed with indexed annuities about two years ago, whereby the firm limited the indexed and crediting strategies on such products. That approach ended up helping grow the firm's indexed annuity sales, Mr. Gacona said.
“We will do the same with our VAs,” he said. “It won't happen in April because it'll be too soon.”
Because discussions with carriers on some of these specifications are in the very early stages, the time frame for a simplified VA lineup would likely be “well into 2018,” given the typical trajectory of annuity product development, Mr. Gacona said.
“The idea that products might become a little more homogenized might be a positive for our industry,” said Stephen Truso, senior vice president at U.S. Bancorp Investments Inc.
