If you sell or market annuities, you may face a frustrating problem.
This should be the best market for retirement savings products ever. Employment is pretty good. More than 15,000 U.S. adults are turning 50 every weekday. At least about 3,000 of those adults probably earn enough that they should be flooding into the offices of insurance agents asking for retirement planning services.
Meanwhile, most of the news coming out about annuities this week is either bad or (frankly) pretty boring.
One reason is that it’s summer. Many advisors and annuity industry luminaries are either networking at conferences or relaxing on beaches.
A second reason is that it’s right before the end of the quarter. Many publicly traded insurers release big, juicy news with their earnings reports, or soon after they release earnings.
A third reason is the U.S. Department of Labor’s fiduciary rule. DOL officials turned part of the annuity world upside down June 9, when much of the rule took effect, and are warning that some of the rest of the annuity world could turn upside down Jan. 1, if they cannot figure out how to keep other provisions and interpretations from taking effect.
Some advisors and insurers like the goals behind the fiduciary rule effort, and some quietly support the rule itself, and how the rule is being implemented. Even the most fervent supporters have to concede, however, that insurers, advisors and others who should be trying to prepare the rapidly aging boomers, and the gray-hair-plucking baby busters, for retirement, are, instead, scouring the DOL website for new regulation drafts, and for bits of subregulatory guidance that might help explain what’s coming next.
Here are five other ideas about forces (or vacuums) in Washington that are choking your annuity business.
Senate Majority Leader Mitch McConnell (Photo: McConnell)
1. Senate leaders took the American Health Care Act into a cave somewhere and started working on it.
Reporters can still attract some readers by reading H.R. 1628, the Affordable Care Act change bill that the House passed in May, and listing some of the things that the bill might do.
Senate Republican leaders have slowly smothered interest in detailed reading of the House bill, however, by sneaking off with the draft and working on their own version. The version that Senate Majority Leader Mitch McConnell and colleagues are, apparently, drafting might be similar to the House bill, or very different.
Sen. Bob Corker, R-Tenn., on Tuesday told MSNBC’s “Morning Joe” that he looks forward to seeing the Senate version draft Thursday.
For now, however, writing detailed articles about what the Senate Affordable Care Act change, repeal or replacement bill might be is like writing about what space aliens might do if and when they come to Earth, given that no one has much more idea what the Senate version might look like than about what space aliens might look like.
3. Tax reform is not setting any speed records.
The Trump administration posted a summary of what it would like to do in connection with taxes in late April. In theory, provisions in the summary could help annuity sales, by increasing people’s disposable income, or hurt annuity sales, by weakening the power of federal income tax provisions that support retirements.
Since the tax proposal summary appeared, however, the level of further action in that area has been limited.
The Kremlin (Photo: Shutterstock)
3. Russia seems to have eaten any remaining tax reform momentum.
For a few weeks, the arrival of the new Trump administration made retirement rule proposals and tax system change proposals that could affect annuity sales front-page news, even at general-interest newspapers.
Today, news about investigations related to allegations of possible Russian involvement in U.S. affairs has eaten up much of the attention that was going to health, retirement and tax policy.
3. The Employee Benefits Security Administration has no head.
EBSA has such a low profile that even editors of financial services news websites question reporters closely about whether they seriously believe readers have ever heard of the agency.
EBSA is, however, the DOL agency that oversees federal involvement in health benefits plans, retirement benefits plans and other employee benefits plans.
The “DOL fiduciary rule” is actually EBSA’s fiduciary rule. Phyllis Borzi, the assistant secretary in charge of EBSA under former President Barack Obama, signed the final version of the rule that appeared in the Federal Register on April 6, 2016. The contact listed at the top of the final version of the regulation were all EBSA employees.
As of press time, President Donald Trump had not yet nominated a candidate to serve as the new DOL assistant secretary in charge of EBSA. Even if EBSA officials have some ideas about how to clear up the annuity fog, it might not be that easy for them to get the ideas out into the universal, given their lack of an official agency leader.
Janet Yellen (Photo: J. Scott Applewhite/AP)
5. No one in Washington will help Janet Yellen get cash flowing through the economy.
Just how much efforts to expand or shrink the money supply affects the overall economy is controversial, but the members of the Federal Reserve Board believe that the size of the money supply is critical.
The Federal Reserve System has done what it can to keep interest rates as low as possible in an effort to make the money supply big enough to make employers, workers and investors feel richer, and happier.
The ultra-low rates have the opposite effect on life insurers and retirement savers. Ultra-low rates cut what savers can earn on assets invested in savings accounts, fixed-rate annuities or other fixed-rate investments. Because life insurers invest heavily in bonds issued by companies with high credit ratings, and bond issuers with high credit ratings are paying ultra-low rates, the ultra-low rates are also hurting the yields insurers get on their bond portfolios. In the long run, persistent low earnings on bond portfolios may limit how much life insurance or annuity risk insurers are willing to take at what consumers see as reasonable prices.
Congress could help Federal Reserve Chairman Janet Yellen colleagues expand the available money supply either by cutting taxes or by increasing spending. If Congress chipped in, Yellen and her colleagues might feel more comfortable about doing what they can to push interest rates back up.
Since the end of the Great Recession, however, Congress has not much to either cut taxes or increase federal spending.
— Read Bernanke: Low Rates Are the Long-Term Trend on ThinkAdvisor.