Whether or not the Department of Labor’s now delayed fiduciary rule goes into effect, this much seems evident: Agents and advisors are increasingly migrating from commissions on product sales to a fee-based investment advisor model that engenders holistic planning, acting in the client’s best interest and, thus, adherence to aspects of the rule.
Why the shift? Because adoption of a fee-based advisory model, by bringing greater trust and professionalism to the client relationship, is ultimately good for business.
This was an overarching theme of remarks by Carolyn Johnson, CEO of annuities and individual life at Voya Financial. Over a nearly 50-minute phone interview with LifeHealthPro, Johnson shared her thoughts on the direction of protection and retirement plan products, prospects for life insurance and annuity sales amid changing market dynamics, and innovative initiatives underway within Voya’s business units. The following are excerpts.
LHP: What are Voya Financial’s current priorities in respect to life insurance and annuities?
Johnson: We’re leveraging our businesses to better tailor solutions to the market served by retirement and investment advisors; we want to be a player in this space. In recent years, our distribution channels have expanded to include broker-dealers, banks and other organizations with registered reps, many of whom are becoming investment advisors. So it’s important for us to have products that fit their needs.
LHP: Last October, I attended a media briefing at which the company unveiled the Voya Behavioral Finance Institute for Innovation, which I understand plans to test concepts that might help defined contribution plan participants save more and achieve better retirement outcomes.
Do you have an update on the initiative and the work its new head, ULCLA professor and behavioral economist Shlomo Benartzi?
Johnson (pictured at right): The initial focus of Benartzi and his team has been our retirement plan business. Many individuals aren’t contributing to their plans or they’re not contributing enough to be prepared for retirement. Professor Benartzi is helping our plan sponsors and our customers better understand behavioral finance techniques that can induce participants to engage and contribute more actively to their retirement plans.
We’ve established internally a steering committee to expand the institute’s behavioral finance techniques and approaches across all of Voya’s businesses. These include our asset management, employee benefits, and life and annuity businesses.
We’ve also invested substantially in digital tools to help people understand better their retirement plans. Over the next 6 months, expect to see a lot more retirement-focused initiatives leveraging the institute’s insights.
A rise in interest rates in recent months has bolstered sales of annuity and life insurance products, says Voya’s Carolyn Johnson. (Photo: Thinkstock)
LHP: Turning to the economic and business environment, what changes do you foresee impacting the life insurance and annuities spaces in the coming months?
Johnson (pictured below): On the regulatory front, we expect that the DOL fiduciary rule will have a big impact on annuity sales. We’ve done a lot of work to prepare and believe we’re well positioned for the rollout.
That said, most of our annuity business comes through registered reps, many of whom are affiliated with independent marketing organizations. Under the rule, these IMOs will have to secure the DOL’s approval to be classified as a financial institution — a status they need to sign off on fixed indexed annuity sales. For all but the largest IMOs, becoming an FI could be a challenge due to the steep requirements of a proposed class exemption under the rule for these organizations.
One bit of positive news has been the recent upward movement in interest rates. The increases help our annuity and life insurance businesses by making them more competitive [with other investment vehicles] available to consumers. Yields on the 10-year U.S. Treasury Notes [in mid-February] were about 2.5 percent — a nice improvement on the lower rates of earlier months.
The rise has helped fuel rising consumer interest in indexed life and annuity products, which have really taken off. Also on the upswing are fee-based products. Producers and broker-dealers migrating to an advisory model want not only investment products on an advisor-friendly fee platform, but also protection products.
Also fueling sales are advances in digital, straight-thru processing of life policy applications. Voya has invested a lot in this technology because it allows new business to be processed so much more quickly and conveniently.
LHP: To your earlier point, the move to fee-based products is a result of advisors adopting an investment advisory model, with or without the DOL rule, correct?
Johnson: Yes. Many brokers are already moving to this model. The DOL rule is only accelerating this shift.
Regardless of whether and when the rule is implemented, advisors will continue along this path. That’s good for customers because an advisory model demands ongoing servicing of clients and a holistic planning focus.
If marijuana use continues to rise, Voya might seen an impact. For now, the insurer underwrites occasional marijuana users as a preferred risk. (Photo: Thinkstock)
LHP: Do you also envision more direct-to-consumer initiatives — as opposed to selling product through advisory channels — at least for the middle market?
Johnson: A number of carriers — but not Voya —are testing different direct-to-consumer methods. Most of these initiatives are happening on the life insurance side; we don’t see meaningful movement in the annuity market. For our part, we remain focused on driving business through advisors and migrating to advisory services.
LHP: Last year, indexed universal life sales increased despite industry concerns about increased regulation of the products. Among the worries is the NAIC actuarial guideline AG 49, which since September 2015 has imposed new restrictions on maximum illustrated rates for IUL policies. Could these limits put a damper on IUL sales?
Johnson: Indexed UL products continue to thrive in a [post AG-49 environment] because they provide attractive benefits, including significant cash accumulation potential. But they don’t carry the capital burden of other permanent life products, such UL policies with secondary guarantees. Because of these underlying drivers, and growing consumer demand, I think we’ll continue an intensified industry focus on IUL.
Another factor fueling IUL sales is, paradoxically, the regulation of investment products. Many producers started out selling life insurance, then moved on to securities. Some are now migrating back to life products to avoid burdensome regulations — including the DOL rule — governing investments.
LHP: How have e-cigarettes and marijuana affected your life business, if at all?
Johnson: We’re not seeing a significant increase in policy applicants who use these products. In respect to e-cigarettes, we underwrite them like we do any tobacco product because they contain nicotine.
Cannabis is growing in popularity, in part because of the success of ballot initiatives in recent years: Marijuana use for medical purposes is now legal in 28 states and the District of Columbia.
If marijuana use continues to rise, we might see some impact. For now, we can and do underwrite occasional marijuana users as a preferred risk. Frequent users, whether for medical or recreational reasons, are more likely to be rated like a smoker, the underwriting factoring in both elevated health and accident risks.
By leveraging data analytics tools and consumer research, Voya Financial is able to gain a clearer understanding of the “voice of the customer.” (Photo: Thinkstock)
LHP: Voya and Lincoln Financial just launched new annuities. How have customer demands changed for annuities? And what has been the impact on product development?
Johnson: Nearly all — 97 percent — of the annuities we sell today we developed in the last three years. We’ve been very active in building out an annuity portfolio with a variety of innovations. Our most recent solution, Voya Journey Index Annuity, is a fixed indexed product that offers 100 percent participation in the growth of one or more dynamic indices over a 7-year period.
Fixed indexed annuities have seen spectacular growth over the last few years. The products resonate well with folks looking for upside potential and principal protection — key benefits for individuals whose suffered significant investment losses during the 2007-2009 financial crisis.
Many of our products — though not all — also boast income benefit guarantees. As a result, there’s much greater acceptance by banks and brokers-dealers of these products in the last several years.
LHP: How has product development at Voya changed during this period? To what extent do new technologies, research and data analytics underpin your ability to innovate?
Johnson: Traditionally, much of product development is based on feedback from those at the top of the distribution hierarchy. Such limited feedback is naturally filled with biases.
In 2015, we launched Voya’s Strategic Relationship Management group and the Customer Solution group to better leverage company-wide relationships with key customers and strategic partners, and to innovate and deliver new products, services and tools. By leveraging data analytics tools and consumer research, we’re able to gain a much clearer understanding of the “voice of the customer.” The additional knowledge and insights let us build products that customers, advisors and distribution partners can adopt and support.
We also do a lot of testing and learning through product prototyping. And we use data analytics to understand more about in-force customers so we can target them at the right time and with the right info. This year, we also kicked-started a tech-based community to elicit feedback from advisors and customers on product ideas we’re thinking about.
LHP: The DOL rule keeps shifting. What should advisors be aware amid such uncertainty?
Johnson: Our advice to advisors is to be ready. Yes, there’s a lot of confusion now about what will happen given the delay in the rule’s implementation. But advisors and distribution partners need to be prepared to implement aspects of the rule. As I noted earlier, we’ll continue to see a migration among firms to an advisory-oriented and planning model. There will also likely be greater standardization of compensation across product lines.
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