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3 strategies for annuity carriers bracing for DOL fiduciary rule impact

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Annuity providers should begin preparing now for potential impacts of the Department of Labor’s fiduciary responsibility guidelines that are expected to be implemented in the next several months, according to a report by Novarica.

The impact of the ruling for this year remains unclear, although sales may drop as advisors look for ways to avoid risk. Conversely, there could be a rush to book sales before the rules take effect, the firm says.

Most of the impacts are likely to manifest in 2017 or later. Some carriers already are preparing by establishing governance structures for initiatives, considering changes to their overall product mix commissions and surrender charges, and changing distribution strategies. More carriers should be taking steps like these to avoid being blindsided in the months and years to come, Novarica says.

“These rules mandate that the distribution system and the manufacturing entity ensure that the best interests of the client are being served, as defined by the regulations,” the report says. “This has the potential to create significant new compliance issues, especially when compensation is based on something other than an hourly rate, a flat fee, or a flat fee that is tied to the assets under management. For carriers which have already moved to an AUM based model for compensation, the proposed regulatory changes may well have a very modest impact.”

For carriers that have used commission rates and bonus structures as key elements to support distribution capabilities, the impact could be more significant.

“Several industry studies are projecting significant sales declines,” says the report. “Carriers in this space may find that their investment plans over the near- and mid-term planning horizons need to be adjusted to minimize compliance risks and maximize their potential to continue to deliver these products.”

Novarica offers three strategies carriers can implement to prepare for the coming regulation.

Strategy 1: Wait and See

Many carriers are taking a wait-and-see approach, electing not to make changes until the final version of the rule is released. Some carriers are taking a near-term approach of shifting overall product mixes, such as emphasizing fixed annuities, changing commissions and surrender charges, and emphasizing alternative distribution channels.

Strategy 2: Re-Evaluate Distribution

Some companies have chosen to readjust their distribution channels. AIG agreed to sell its broker-dealer network, AIG Advisor Group, to Lightyear Capital.

MetLife sold its broker-dealer arm, MetLife Securities, and its advisor network, the MetLife Premier client Group, along with related assets. Novarica noted both AIG and MetLife are designated as Systemically Important Financial Institutions, so it will be interesting to see which carriers follow in their footsteps.

Novarica says other carriers it spoke with reported concerns that the rule might drive some distributors out of business and force others to change their model, while making prospects with lower asset volumes less attractive to advisors. And another carrier said distribution partners are likely to need support through the transition and a thoughtful balance of speed to market for product and commission changes.

Strategy 3: Revise IT Plans

Project prioritization will likely be impacted by the DOL guidelines while compliance issues take center stage. Some of the specific requirements are likely to include:

  • Tracking fiduciary exemptions.

  • Making compensation plan changes.

  • Implementing additional disclosures and more expensive ‘know your customer’ programs.

  • Potential changes to data feeds and data warehousing.

  • Potential changes to disclosures.

  • Potential changes to website creation.

  • Potential changes to policy administration systems to accommodate recommended changes or unsupported product features.


Novarica predicts the rule will have wide-ranging impact on compensation, compliance, customer service, distribution strategy, marketing strategy, product design, product mix and more. Coping with those changes will require change management and communication, says the report.

Carriers should begin to prepare for the rule now by putting a governance structure in place for driving initiatives related to the DOL regulation; evaluating the rule’s potential impact across business and processes; and developing a change management plan that includes a communication strategy, according to the report.

See also:

5 things to know about the DOL fiduciary rule

3 steps to prepare for DOL fiduciary rule

What’s next for variable annuities after DOL fiduciary rule?

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