In this post-DOL fiduciary rule time, the annuity industry will certainly change, but in some ways will still remain the same. In the Financial Planning article “How will annuities fit in portfolios in a fiduciary world?,” Chris Orlando says that there is still an important place for annuities. The industry has changed before as laws and other economic factors have forced it to and it will certainly adapt again. Annuities have been questioned for their suitability, exchange laws, whether indexed annuities are securities, and now they must comply with the latest DOL fiduciary rule. Just like every other product out there, annuities have a place. The author criticizes people who label financial products as good or bad because he says that it only matters how the financial product is used in any particular financial plan. No product is inherently good or bad.
Insurance companies are being forced to adapt to these changes and while it may not be easy, consumers will reap the benefits. The biggest change will be in regards to how advisors are compensated. Orlando believes that most up front commissions will disappear in favor of fee-based products. He thinks that insurance companies would rather pay 1% up front and then a 1% trail per year on a 10-year surrender schedule rather than 10% up front. It’s becoming more difficult for insurers to sell commission-based products, so they are transitioning to fee-based models if they didn’t already carry them. He thinks that trail options will be the wave of the future.
The whole purpose of the Department of Labor’s fiduciary rule is to ensure that annuity products are in the best interest of the consumer before they are sold. Variable annuities and indexed annuity products have to meet the Best Interest Contract Exemption guidelines. Although this adds more work for advisors and insurance companies, Orlando says that it can help them in the long run. Making clients happy by recommending products that best meet their needs will inevitably make them tell their friends and family about their happy experience. This will create more business in the long run. Many consumers can benefit from having an annuity in their financial portfolio. The products may undergo some changes in the near future and the commission structure will change, but the annuity industry still has an important place in our economy.
Written by Rachel Summit