5 ways regulation is affecting the annuity industry

O’Brien: It’s the proprietary indices and some of the exotic indices that are going to be our new challenge in the industry. 

Moore: Agreed, Kim. And in the conversations I’m having with regulators, one of the big concerns I’m hearing about is uncapped crediting methods. What they’re seeing is that there may be a disconnect between that concept and what’s being communicated to the client. And that’s a concern. I just want to caution all of you that if you are selling uncapped index annuities and these products with these proprietary or hybrid indices, please understand your product and make sure you are communicating this very well to your clients so there’s a realistic expectation of what they can receive. It’s the guarantees on these products that the prospects and the consumers want. They don’t want to hear that this product has stock market-like potential, they want the safety, and they want the guarantees. So we need to return to that message rather than getting excited by these exotic indices. 

Kipper: One of the things we do here in Nevada that I would love to see other states do is we have an advisory committee made up of industry reps, brokers, advisors as well as some consumers and we sit down quarterly and talk about issues. The other thing is if you see something out there in the street that looks a little fishy, or is something that you know is illegal or you think is illegal, we ask producers and advisors to contact us and turns us onto those concerns, to those products, so we can investigate and vet them more fully. 

What we see occasionally that gets advisor in trouble with us is they go beyond what you were just talking about and fill in and color it more than they need to and some of that coloring isn’t quite right. And then those complaints land on my wall. I think if there is a takeaway, it’s education; know your products; know how they function and tie that with the suitability piece after you’ve sat down and debriefed your clients.  Q: How can advisors prepare themselves for future changes? And if they’re with an FMO, how can they talk to their producers about how to adapt? 

O’Brien: Engage. There is currently a proposed tax reform proposal draft by Congressman Camp that’s imposing almost $28 billion of taxes to pay for reform. Now, it’s a draft bill, but this $28 billion of taxes on the insurance industry, and it’s only life insurance companies, is going to absolutely devastate our marketplace. It’s going to impact the product; it’s going to impact how the product can perform, the interest rates that can be deemed. So get involved. Engage. Meet with your congressperson. Please do, because they will listen to you. You’re a vote and you can tell them what impact this will have on your business and your customers. 

Moore: We also need to be focusing on education. I’ve really been disappointed in our industry as a whole since we defeated 151A. It seemed like everybody was like, “Oh, that sucked, but it’s over. OK, back to what we were doing.” But we need to learn a lesson here. Maybe it’s not the same exact issue we were dealing with on 151A, but we need to be more of a self-policing industry, because I don’t know about you guys, but I think these products are freaking awesome. I own indexed annuities, I own indexed life insurance. I believe in these products and I think that if we want to be able to continue to give that message to consumers, we need to protect our business. And do you know what the easiest way to protect this business is? To educate. 

Kipper: I completely agree that education is at the forefront. If you couple the engagement with the education and you throw in a great deal of passion, I don’t know how you wouldn’t be successful.  Q: What are the most common mistakes that you see advisors make that lead to enforcement actions? 

Kipper: One of the most common ones is not knowing your product and overpromising what is not there. So if you know your products well, educate yourself and follow that, you will have fewer problems. I think that’s so key and will continue to diminish the number of complaints and enforcement actions. 

O’Brien: What we see often is in advertising. Misleading advertising, seminar pitches that are misleading or aren’t in compliance with a state’s advertising and promotion law. You’ve got great resources out there; use them. Your marketing organizations and carriers are very attuned to what is compliant, so use the resources that are there for you. Don’t go it alone. Moore: Something I’ve observed in the insurance industry is that product innovation is always a step ahead of regulation. Use your own instincts and experience and that little thing inside you that says “I don’t know if that’s a good idea.” Listen to it. Because if it feels like it’s not right, it probably isn’t. And it can catch up to you. I’ve observed it time and time again. We are so innovative in this industry: new, different, better, faster and cheaper. Just remember that regulators usually don’t know about it until someone drops in at their office and briefs them on it. 

McCarty: One of the easiest things we can all do is just check our moral compass. That very first phone call from a client with a bit of a negative regarding the product can often be easily handled by getting right back to the person. We can blow out a match easily, but it’s hard to put out a forest fire. And every day that goes by where there’s a lack of communication with the client breeds mistrust, and we’ve seen it in our industry.