5 ways the new Department of Labor rule is a positive for the annuity industry: OPINION
October 26, 2016 by Stan Haithcock
As many in the annuity industry continue to lament the coming implementation of the recent Department of Labor (DOL) ruling, the end result will actually be a positive for the annuity category.
Simplicity will rule once again
The original annuity design for pension-type income was very simple and an easy-to-understand transfer of risk strategy. Most annuity types can be fully explained and understood by a nine-year-old, and those product types (SPIAs, MYGAs, DIAs, QLACs) will become more popular due to the DOL changes.
In addition, complex types like variable and indexed annuities will become simpler and the built-in commissions will be much lower. As Steve Jobs said, it’s difficult to make the complex simple. The DOL ruling will force the annuity carriers to achieve this pro-consumer goal.
The agent-education bar will be raised
In some states, it takes less than two weeks to get licensed to sell fixed annuities, of which the primary type sold is the over-hyped indexed annuity. How the annuity industry can justify that current low qualification bar is a true head-scratcher, and in my opinion, a primary reason for the negative perception of current indexed annuity sales practices.
The pending DOL rule will hopefully raise the bar for agent/advisor education, and the qualifications to sell them. That’s a win-win for the consumer and the industry.
Indexed annuities will be more regulated
I find it ironic that a product designed in 1995 to compete with CDs, will probably go down as one of the most controversial products in financial history. Even though all respected research shows CD-type returns with indexed annuities, the misleading “market upside” mantra and “shiny thing” (i.e., up-front bonuses and high-percentage rider) sales pitches frame most TV, radio, and bad-chicken-dinner seminar themes.
The DOL ruling and subsequent new regulations will be a positive for the indexed-annuity category in the long run. I might be the only one saying that in the industry, but I will hopefully be proven right in the coming years.
The annuity sales message will clarify
Annuities are hated and misunderstood by too many Americans because the industry has done a poor job with framing the unique value proposition that separates annuities from all other financial products. Annuities, regardless of type, are transfer-of-risk products and provide contractual guarantees. But the “killer app” is that annuities are the only product available that guarantees a lifetime income stream, regardless of how long you live. Argue all you want about market investing, but solving for longevity risk sets the annuity category apart.
The current barrage of indexed-annuity TV and radio ads will also disappear when the DOL rule is fully implemented, to the delight of many in the industry … especially variable annuity issuers. Once again, the industry and the consumer will be the winners.
The DOL’s fiduciary standard equals more choices shown
In my perfect annuity world, annuities are commodity products and should be owned for the highest contractual guarantee found for your specific situation. Because of this simple fact, all carriers should be shopped and shown to the annuity consumer. The DOL rule will force this “no-brainer” approach to not only buying annuities but how they will be sold.
Acting like a fiduciary means putting your client’s interests first. The vast majority of all annuity salespeople naturally act as fiduciaries because it’s the right thing to do, but every industry has a few bad apples that create negative perceptions. Unfortunately, those few bad apples were the driving force behind the DOL stepping in to drain the perceived annuity swamp.
The DOL ruling is going to happen and be fully implemented by January of 2018, regardless of numerous legal actions that have been taken. Once the regulatory dust settles, the consumer and the annuity industry will both be the long-term winners, and sales numbers will skyrocket to fulfill the demographic tidal wave of demand for contractual guarantees.
