401K Question

[scagnt83]

lastly, I am very certain you must be securities licensed to be the rep on a variable annuity, unless you were suggesting it wasnt needed if an FIA was to be in a plan.

There are some that allow it. Its old grandfathered laws that are state specific. Only a few states left.

It has to be a Non-Registered GVA. Lincoln and Ameritas are the main players in that field right now... and Anico but their product is criminally bad. Empower also has a non-registered group trust that will pay a marketing fee to an agent in those states.

 

[scagnt83]

how does this work with DOL & other regs regarding fiduciary standard. How could having a life only licensed agent install a group variable annuity possibly meet that standard, especially if the rep is meeting with any of the employees to discuss the plan & the offerings. Seems like a lawsuit waiting to happen for the employer/plan administrator to not vet that aspect out in todays environment

If you are trying to make sense out of state based finance and insurance regulations... stop trying... lol.

Its just a grandfathered law thats been on the books for decades.

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401k Advisors do not give direct advice to Participants unless they take on the role of 3(38) Fiduciary, which only a RR can do.

The only Fiduciary advice the Advisor is giving is to the Sponsor.

Advisors only give "education" to Participants, not specific advice.

Only a 3(38) Fiduciary can give actual advice and recommendations to participants.
And it is EXTREMELY RARE for an Advisor to take on that role.
IF they do, it is an optional service that comes at an additional cost to the participant.

Lots of RRs act as 3(21), which is a Plan Level Fiduciary who takes liability for fund selection. But Participant level advice is usually outsourced.

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The platform has a set choice of funds that have already been vetted by a 3(21) Fiduciary, usually a 3rd party like Messirow or S&P.

So at most the advisor is choosing funds from an already pre-qualified lineup.

And most of the group VAs require a diversified selection. Some even have pre-chosen lineups that the advisor can choose.

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So a non RR 401k advisor is choosing funds from a pre-selected line up.
Not giving specific advice to employees.
Only giving Plan Level advice to the Sponsor.
And outsources the 3(21) and 3(38) services if they are provided.

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Honestly, imo, there is no extra risk to the employer at all in that situation. Assuming the agent knows about 401ks and regulations surrounding them.

Nothing in a RRs regulatory training equips them to deal with Plan Level issues. An insurance only agent can learn it just as well as a RR can. They could even get a 401k related designation.

 

[Allen Trent]

Empower also has a non-registered group trust that will pay a marketing fee to an agent in those states.

Definitely aware there are some that pay a marketing/referral fee. Wasnt aware there were any that would allow someone non-securities licensed to be listed as the agent/rep on the group policy as the contact person, etc.

 

[Allen Trent]

If you are trying to make sense out of state based finance and insurance regulations... stop trying... lol.

Its just a grandfathered law thats been on the books for decades.

----

401k Advisors do not give direct advice to Participants unless they take on the role of 3(38) Fiduciary, which only a RR can do.

The only Fiduciary advice the Advisor is giving is to the Sponsor.

Advisors only give "education" to Participants, not specific advice.

Only a 3(38) Fiduciary can give actual advice and recommendations to participants.
And it is EXTREMELY RARE for an Advisor to take on that role.
IF they do, it is an optional service that comes at an additional cost to the participant.

Lots of RRs act as 3(21), which is a Plan Level Fiduciary who takes liability for fund selection. But Participant level advice is usually outsourced.

---

The platform has a set choice of funds that have already been vetted by a 3(21) Fiduciary, usually a 3rd party like Messirow or S&P.

So at most the advisor is choosing funds from an already pre-qualified lineup.

And most of the group VAs require a diversified selection. Some even have pre-chosen lineups that the advisor can choose.

---

So a non RR 401k advisor is choosing funds from a pre-selected line up.
Not giving specific advice to employees.
Only giving Plan Level advice to the Sponsor.
And outsources the 3(21) and 3(38) services if they are provided.

---

Honestly, imo, there is no extra risk to the employer at all in that situation. Assuming the agent knows about 401ks and regulations surrounding them.

Nothing in a RRs regulatory training equips them to deal with Plan Level issues. An insurance only agent can learn it just as well as a RR can. They could even get a 401k related designation.

Great info, thanks

 

[scagnt83]

Definitely aware there are some that pay a marketing/referral fee. Wasnt aware there were any that would allow someone non-securities licensed to be listed as the agent/rep on the group policy as the contact person, etc.

Who else would go down as Advisor in that situation?

And its the same comp as an IAR would get. They customize how many bps they want each year.

 

[DHK]

I know you are just using that as an example.

Agreed. I'm not on top of that market much at all, but the info was easily found, so I just referenced it.

You certainly do know that market and I would defer to your judgment in that space.

Quite frankly, knowing what I do know about the 401(k) space, if I was really going to do it, I'd probably do it as an RIA unless there was a real advantage to using the group annuity chassis. There probably is and I don't know what it is, other than built-in annuitization options?

 

[scagnt83]

Agreed. I'm not on top of that market much at all, but the info was easily found, so I just referenced it.

You certainly do know that market and I would defer to your judgment in that space.

Quite frankly, knowing what I do know about the 401(k) space, if I was really going to do it, I'd probably do it as an RIA unless there was a real advantage to using the group annuity chassis. There probably is and I don't know what it is, other than built-in annuitization options?

Our industry often points out Anico because they market more than the others! lol

Its a dying product in a lot of ways. I dont even know of any in the 401k space that "annuitize" its essentially just a chasis for mutual funds with most carriers now.

(I think there are some in the TSA space that offer annuitization within fixed subaccounts, GAFRI comes to mind.)


There might be some advantages on the carriers side to having it set up like that vs. a Group Variable Trust. But none to the client that cant be found on a Trust platform.

GVAs are better suited to small groups generally speaking. Some will go into the hundreds of participants but few will be competitive in that range. I doubt any would quote a plan with thousands in it.

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But Im not sure why they ever had them set up as VAs vs. Trusts to begin with. Must be something on the carrier side, either regulatory or financial.

There are possible drawbacks though. That is why I felt the need to put a public warning about Anico. Last I checked they had a 7y surrender schedule on full surrender of the entire Plan. Its on the Plan, not Participants... legally speaking... real world its on the participants, but essentially the Plan is locked-in for 7 years. Cant move without a steep fee that the employer would legally be forced to cover for participants.

It also offers a miniscule fund lineup that is uber expensive compared to other options.
And of course the Asset Charge on the Plan is uber expensive as well.... to pay for the agent comp that is 100x more year 1 than any other option on the market. (no, that 2nd zero is not a mistake)

Compare that to LFG, they have no surrender charges, low fees on plan and funds, and hundreds of funds to choose from. But the agent gets paid normal 401k comp, they dont make an insane amount for the transfer of the assets.

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And yes, RIA is the best model for that set up. But the GVAs can be sold/placed by IARs assuming its an approved product by the RIA.

 

[Bmerc]

The Investment Act of 1933 created the exception for life licensed only agents being allowed to offer employer sponsored retirement plans. I gave up my Series 7 so that I didn't have to run my 401k business through a BD. Many insurance carriers allow for life licensed agents to write 401k plans. Some are Principal, MOA, John Hancock, Empower, Ameritas, One America, Transamerica, Voya, Lafayette, ANICO and others. Some carriers interpret state laws differently and only allow registered reps in some states.

 

[AnnuityGuy63]

Other then the big brokerage houses being against this due to their profit margins why would an FIA with no fees be bad and not suitable for an employer plan.

Other than the liquidity being an obstacle I don't see the problem. And if the liquidity is really an issue there are products with return of premium riders available.

They are already paying 1% fees on the brokerage 401k... so why not pay the 1% fee for a liquidity rider if wanted?

 

[Allen Trent]

Other then the big brokerage houses being against this due to their profit margins why would an FIA with no fees be bad and not suitable for an employer plan.

Other than the liquidity being an obstacle I don't see the problem. And if the liquidity is really an issue there are products with return of premium riders available.

They are already paying 1% fees on the brokerage 401k... so why not pay the 1% fee for a liquidity rider if wanted?

Part of it is recordkeeping from the carrier to the TPA recordkeeper, surrender charge schedule, needing to be a flexible premium product to receive additional contributions, those surrender charges generally track with the deposit, so a person making monthly contributions for 10 years would have 120 surrender charge schedules. Then same for the Starting & ending date for the index credit. Many it is on the anniversary of the policy, but how would that work on a product getting monthly deposit.

At a minimum, I would like to see FIA be available with existy lump sum values to be put into FIA even if the plan can't allow flexible contributions.

Lastly, plans & TPA tend to not be fans of having to vet out which are the best ones & how to discontinue one you no longer like & bring in different annuity carrier when surrender charges could be involved for participants.

I am certain it will get figured out now that Secure Act 2.0 has some protections for employer, plan administrator & TPA recordkeeper. But, my guess it will end up more like 529 plans for the state or how some 403b plans work where the get in bed at the top of the level & don't need agents/reps to be involved. Endorsed list of carriers, maybe no compensation drag on the products chose, etc