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Streamlined Annuity Industry Will Have Simpler Products Post-DOL Rule

Insurance companies are looking for more clarification from the Department of Labor in regards to how they will comply with the new fiduciary rule. They are also trying to figure out how they will continue to meet the needs of broker-dealers and advisors. Investment News’ Greg Iacurci wrote about these issues in the article “Insurers cite broker-dealer annuity requirements as ‘big issue’ under DOL fiduciary rule.” In the past, insurance companies were able to design their products around the requests made by certain broker-dealers. These requests have driven product design in the annuity industry for decades, something that insurers are trying not to change too much in order to keep up with the requirements they have to follow for the DOL rule.

The DOL’s rule requires financial advisors to act in the best interest of their clients in regards to any recommendations made for retirement accounts. Product distributors and insurers are trying to stay flexible and make products that their advisors and clients want, while also staying compliant. Allianz Life Financial Services’ president said that they can no longer distribute a new product through hundreds of broker-dealers, but now individual clients will have different demands. This is the biggest challenge for companies like Allianz Life and Voya. Voya’s chief executive of insurance solutions said that it’s quite an issue figuring out the product requirements that different distributors are requiring. The problem ranges from the features of annuity products to how advisors are compensated.

The majority of broker-dealers haven’t finalized their plans to comply with the DOL’s rule publicly. It is thought that many of them will create a commission schedule that works with multiple products to get rid of any possible conflicts of interest. Insurance companies would have to customize their products since distributors work their commission schedule around their advisors. Annuity distributors have to be flexible and see how banks, both independent and regional broker-dealers, and wirehouses are moving forward. At Jackson National, they expect that they will have different commission agreements at different broker-dealers. Insurance companies will have to decide if they can meet the new demands from broker-dealers.

One of the biggest question marks about the DOL rule is how distributors will figure out the “reasonable compensation” requirement. Once there is some consistency with that, insurers should be able to develop more consistent products and do less individualization. Wells Fargo’s SVP and director of annuities said that advisor compensation will probably go down and the overall design of annuity products will look different after the rule takes effect. They are looking to simplify annuities in order to benefit investors’ understanding of the products. This includes having fewer variable annuity choices, something that should help avoid lawsuits over BICE requirements being met. Wells Fargo made a similar move with their line of indexed annuity products and the simplification actually increased indexed annuity sales. They offered fewer indexed and crediting strategies, something they will start to do with their variable annuity products in the next year or so.

There will certainly be growing pains as the annuity industry works to become more streamlined and meet the requirements of the DOL fiduciary rule. But many experts in the industry agree that this could very well end up being a positive change in the industry. The annuity industry will become more standardized as distributors and insurers work together to develop products that meet the demands of advisors and their clients.

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