WASHINGTON — An historic reluctance to deal with federal regulators is apparently slowing the ability of the insurance industry to properly comply with the Department of Labor’s new fiduciary standard as of the April 2017 deadline.
At stake is the ability of independent agents to maintain the current momentum of hot-selling fixed index annuities (FIAs) into retirement accounts.
According to Jason L. Smith, CEO and founder of Clarity 2 Prosperity, the DOL goal is to establish independent marketing organizations (IMO)s with the appropriate vehicle for distribution of such retirement products as FIAs into investment accounts. Clarity 2 Prosperity is based in Cleveland.
Investment accounts include 401 (k)s, 403 (b)s, pension plans, 457s and “every IRA that is out there,” as stated by Bob Phillips, president & managing director of Alternative Brokerage, an independent marketing organization based in Des Moines, Ia.
According to Phillips, there are approximately 350 IMOs distributing insurance products. LIMRA forecasts they distribute roughly two-thirds of the FIAs sold in the U.S.
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But, Smith said, so far only six IMOs have applied to the DOL to be defined as “financial institutions,” and therefore comply with the Best Interest Contract Exemption (BICE) that is the core of the fiduciary standard regulation that will go into effect next April.
Between 50 and 60 percent of the FIAs sold are into investment accounts that will be covered by the BICE, Phillips said.
At stake are strong sales of FIAs, which “have been increasing quarter over quarter, year over year,” according to Phillips.
LIMRA Secure Retirement Institute forecasts a 15-20 percent increase in retail indexed annuity sales in 2016, compared with 2015 results.
Under the new DOL rule, IMOs are not recognized as financial institutions. As such, these organizations cannot execute the best interest contract with the policyholder on behalf of the agent. While industry analysts expect many IMOs will eventually change their status and become broker-bealers, which are recognized as financial institutions by the DOL, there will likely be others who leave the market or consolidate with another organization, shrinking the overall channel’s reach, LIMRA projects.
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“Carriers are telling us they were not looking to sign the BICE agreement on behalf of agents,” Smith said, which echoes similear reports from across the financial services industry.
But, Smith said, there are some carriers that are thinking of signing the BICE for at least a short period until they can pass the torch to IMOs that they are satisifed can comply with the policies and procedures to meet the impartial conduct standard mandated by the fiduciary standard rule.
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The only IMOs that have applied to be a financial institution under the DOL regulation are Gradient Insurance Brokerage, Inc., St. Paul; Clarity 2 Prosperity; Legacy Marketing Group, Inc., Petaluma, Calif.; InForce Solutions LLC, Woodstock, Ga.; Financial Independence Group, Bloomfields, Mich.; and Futurity First Financial Corp., Rocky Hill, Conn.