Despite Backlash, DOL Rule Could Simplify Annuity Products

It seems like all of the annuity news lately has been in regards to the DOL fiduciary rule taking effect next April. Industry experts are either in strong favor of the rule or think it is a terrible regulation that will negatively impact the industry. In “DOL Rule Will Lead To Simplification Of Many Retirement Products,” Cyril Tuohy said that many industry experts believe that the rule will help simplify retirement and annuity products for everyone involved. Distributors will also be forced to use technology and record keeping procedures that are more efficient than the ones they are using now. The Insurance Retirement Institute has a discussion coming up at their annual meeting about “Regulation, The Mother of Invention? Innovation Post DOL Fiduciary” that questions how these regulations will change the industry.

The biggest change will be a return to a focus on the value that customers receive from their products. Innovation will lead to simpler products that hold the basic values associated with annuities and other insurance products. Advisors won’t be overwhelmed with way too many product features to learn and choose from when discussing annuity products with their clients. Tuohy says that commission-based annuities will still remain, but that companies must get on board with offering fee-based products as well. One of the biggest annuity hurdles for both consumers and advisors is complexity. In an effort to be better than the next person, insurance companies have added little benefits here and there like surrender rates, index choices and crediting rates. This has just added to the confusion surrounding annuity products and is something that the DOL hopes will be eliminated in the name of simplification.

The Department of Labor’s changes will lead to more consistent practices on the distribution and wholesaler side. The new processes will make the product review process easier and more consistent. While it might be challenging for advisors to adapt to newer electronic processes, the outcome will be a consistent platform for products and compensation models. Wholesalers and IMOs will have to work to educate advisors on compensation and product options rather than pushing certain incentives or products. Distributors will definitely start offering more fee-based annuity products, but they will also offer commission-based products that have been structured differently than those offered before the DOL rule.

There are multiple lawsuits against the DOL fiduciary rule right now, but Tuohy doesn’t think that a ruling either way will stop the forward progress that is already taking place in the industry. Most of the industry is already working to change their products and delivery system to improve efficiency and meet the new guidelines. They believe that in the long run, most of these changes will benefit the industry. One particular lawsuit by Market Synergy relates specifically to the addition of fixed indexed annuities in regards to the BICE guidelines. This article says that even if Market Synergy wins their lawsuit, the industry has enough forward momentum that they will keep going to make their annuity processes simpler and more efficient. Any lawsuit losses might slow down the forward process a little, but these experts believe that there is no going back now. Many industry experts think that the DOL fiduciary rule will help simplify annuity products and benefit the industry overall.

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