Annuities Are Still Too Complicated: Robert Powell

Some firms focus on the process of solving the existing problem with existing means, rather than addressing the ultimate question, which is to identify if there is a better way to do this that will help the consumer, since that really is our goal.

Another interesting aspect is the convergence in the wealth space of firms wanting to go fee-based, or firms being fee-based.

You also have fee-based annuities, which haven’t yet hit their adoption potential. Registered reps and advisors are creatures of habit and tend to hang onto products they are familiar with.

Commission-based annuities have a lot of riders, which are a driver of adoption. It’s this weird balance where you have people who leverage annuities and others who don’t.

The industry is still working on how which annuities will work best in this dual world of fee and commission.

We’ve got great solutions that can support both, and we do a great job with it.

We also work with partners to bring fee-based annuities and commission-based annuities to wealth management practices and help rationalize both.

It’s having the solution and having people understand what they need to do with them, which are two very different things.

What do you think the annuity distribution technology world will look like five years from now?

If the market does well over the next five years, I think you’ll see a lot of change.

Right now, you see a lot of new firms entering the market after receiving funding, but the second the market turns, you’re going to see many of those same firms acquired by other companies.

Another thing to consider is the platform development trend over the past few years. Everybody is building a platform.

A few years ago, everyone wanted to be a point solution, because firms were independent, advisors were independent, and broker-dealers were independent, so everybody was funding a point solution.

Now all those point solutions are being scooped up by platforms, and you have TAMPs (turnkey asset management platforms) galore out there, in both the wealth management and insurance industries.

The migration toward the TAMP model stuck.

It’s always like an ebb and flow; if the market is good, in a few years you will see a whole bunch of point solutions come back out, with smaller ones added back into the marketplace.

And after that, they will all get scooped back up into those platform providers.

This same thing happens with advisors. The net number of advisors and registered reps hasn’t changed that much in a decade.

Instead of calling them registered reps, they may be called financial advisors — and the types of business they process may be a little bit different — but the number of actual advisors out there hasn’t really changed.

There may be fewer broker-dealers, and they may be under more RIA firms, but the actual numbers haven’t really changed.

It’s like a zero-sum game, in a way, when you’re talking about the market, tech and everything else.

What can be done to simplify annuities so that the average person can more easily understand them and how they can help protect their families?

We’re at the bleeding edge of innovation and annuities, in general, need to become simpler.

When it comes to annuity distribution, the tech providers are the leaders in this space. We need to continue to support the tech providers and the industries that support the process, too.

Part of the problem is that, when you deal with state-specific regulations — every state has its own annuity and insurance rules, its own insurance commissioner, and stuff like that — you’re trying to federate 50 rule sets into one platform/concept, and you’re never going to get them to agree.

When you look at how securities operate today, for example, with a mutual fund company — you have one application for your 529, one for your mutual fund, one for your IRA, and maybe a different one for a Simplified Employee Pension IRA, and that’s it.

That’s how hard it is to get set up on a mutual fund; we could do it in approximately five minutes.

If you want to get set up on an annuity, you need to know all kinds of stuff because of the complexities in the insurance world that have been primarily induced by the different states and their regulations.

Simplification would make things easier for the end consumer but simplifying annuities, and/or federating various state regulations is really challenging.

We’ll instead rely on solution providers to simplify those complexities for the consumer.

Robert Powell. (Photo: iPipeline)