It has been three years since the inception of FINRA Notice to Members 05-50 shook up the FIA world with a mandate for broker-dealers to supervise the sale of fixed index annuities. Since then, B/Ds have scrambled to accommodate existing variable securities producers who generate a fair amount of FIA business.

Most B/Ds are concerned that if they don’t accommodate these reps, they will take their fixed business to another FIA-friendly B/D. Many B/Ds also look at the FIA business as nothing more than a nuisance, additional liability and ongoing noise in the continuing clash between traditional securities and insurance.

In the words of the infamous Rodney King, “Can’t we all just get along?”

At the recent Income Summit, two advisors with identical client profiles came up with diametrically opposed case designs. One was insurance-weighted with the usual blend of annuities, life and long-term care insurance. The other proposal included dividend-paying blue chips, structured product and laddered bond funds. This divergence of professional opinion helps illustrate the situation. Because fixed products haven’t been part of the stable of revenues at most B/Ds, having a profit center that includes FIAs or other fixed insurance products has been an afterthought.

Ironically, B/Ds echo reps’ concerns about spending 20 percent more time on decumulation clients that create 20 percent less revenue before they expire. As Americans age and become increasingly concerned with having an income they can’t outlive, fixed annuities will evolve into a staple offering much like when variable annuities overtook mutual funds in B/D offerings in the late 1990s.

B/Ds are at a crossroads. Many are continuing with business as usual. But because of NTM 05-50 and other factors, some B/Ds are creating their own field marketing organizations or learning from some of the top performing FMOs how to create a new source of recurring revenue.

There are four core reasons why some B/Ds are now including FIAs and other fixed insurance products in their product allocation, all of which point to the sustainability of their businesses:

  • Most B/Ds today have never felt the impact of a secular bear market and its impact on new and recurrent revenue over a 15 to 20 year period.
  • B/Ds have never been through a seismic demographic shift in wealth transfer and faced the challenges of maintaining margins during decumulation of core client assets.
  • Most B/Ds have never seen the regulatory challenges faced in this millennium which has led to continued consolidation and rep discontent.
  • The increasing trend towards federalization of the insurance business as seen in Treasury Secretary Paulson’s recent proposal or the Optional Federal Charter (OFC).

Kevin Startt is a 30-year financial planning veteran and vice president of Broker Dealer Business Development for GamePlan Financial Marketing. He can be reached at kstartt@gameplanfinancial.com or by calling 800-886-4757.