- 547
DOL Unintended Consequences?
- Thread starter Mike Siegal
- Start date
- 15,041
I would say the first one was intended. Fewer products and fewer advisors. At this point, regulators have been doing this long enough to know that would be a response.
To the second, again not unforeseen but perhaps unintended by regulators. Every time regulation is increased, there are more consumer protections. Unfortunately, more consumers get ignored because the cost does not outweigh the benefit.
Right now, many industries are moving away from mass market and towards mass affluent. Serving the masses just doesn't pay the bills anymore, the middle class is too squeezed. But the upper class/income is large enough and has enough money that you can do well targeting its lower end.
To the second, again not unforeseen but perhaps unintended by regulators. Every time regulation is increased, there are more consumer protections. Unfortunately, more consumers get ignored because the cost does not outweigh the benefit.
Right now, many industries are moving away from mass market and towards mass affluent. Serving the masses just doesn't pay the bills anymore, the middle class is too squeezed. But the upper class/income is large enough and has enough money that you can do well targeting its lower end.
Liberals were after the Index Annuity salesperson who pitched indexed annuities at dinner seminars. These advisors who only sell the same index annuity with same company will obviously move onto something else. So this is actually good news for us. Now the bill make it impossible for a 22 year old to enter the annuity business because you bring in 1 million annuity assets and you get level commission at 10K, you will be broke even living under the bridge. Before the youngsters could sell 500K in annuity business and make average 7% and get better every year. So definetely new advisors going into annuity business will have to sell something else to survive and make a transition into the annuity business over time.
For advisors with an established book of business, it makes no difference whether I get 1% every year for 8 years or 7% upfront. I can afford the change. As for the whatever new requirements they throw at us, everything is moving in the direction of online apps. The regulators can add as many disclosure pages as they wish.
For most independent advisors who have built their business doing the best for their client and earning referals, this law makes little difference.
Since most likely there will be very little enforcement of the law while Trump is president, it remains to be seen what will happen to folks who advise clients to forego 401k matching and put all their retirement money into indexed UL.
For advisors with an established book of business, it makes no difference whether I get 1% every year for 8 years or 7% upfront. I can afford the change. As for the whatever new requirements they throw at us, everything is moving in the direction of online apps. The regulators can add as many disclosure pages as they wish.
For most independent advisors who have built their business doing the best for their client and earning referals, this law makes little difference.
Since most likely there will be very little enforcement of the law while Trump is president, it remains to be seen what will happen to folks who advise clients to forego 401k matching and put all their retirement money into indexed UL.
- Thread starter
- #4
- 547
Hi walt,...thank you for chiming in.
My understanding is that many annunity FMO's will obtain financial institution status circumventing the DOL's fiduciary duty law. What's your opinion on this?
ALSO, didn't read anything about commissions being cut to 1% per year...can you point me in the direction of this rule?
Thanks very much!
The issue here is the abuse of FIA salespeople then you should fix only that problem. And State Insurance Divisions are supposed to fix that problem but they are not doing that nationwide. So DOL comes in and fixes the problem in a sledgehammer way. Making FMO's financial institution won't solve any problem at all.
As for the 8% commission. It is the opinion of most lawyers that collecting 8% upfront on 100k IRA account is almost always excessive. So under the law collection commissions upfront is generally not allowed unless you can document and show exceptional circumstances. Annuity companies won't allow you to sell their annuities upfront all the time.
Now you will allowed to collect fees instead of commissions. So you can charge and initial financial planning fee of $4000 and collect 750 a year for the next 7 year for annual reviews and put everything in a no load annuity. Or you can sell an annuity with the 1% fee payable to you. There will be more no load annuities and much more annuities with the 1% commission structure.
As for the 8% commission. It is the opinion of most lawyers that collecting 8% upfront on 100k IRA account is almost always excessive. So under the law collection commissions upfront is generally not allowed unless you can document and show exceptional circumstances. Annuity companies won't allow you to sell their annuities upfront all the time.
Now you will allowed to collect fees instead of commissions. So you can charge and initial financial planning fee of $4000 and collect 750 a year for the next 7 year for annual reviews and put everything in a no load annuity. Or you can sell an annuity with the 1% fee payable to you. There will be more no load annuities and much more annuities with the 1% commission structure.
- 15,041
I admit I know little about the new regulations and products, so please correct anything I am about to say.
From what I saw previously, once you put an income rider, of any kind, on an annuity, the client was basically locked in for life. It was unlikely the account value would ever exceed the income rider base. Whether indexed or variable. So, a smart person would gladly forgo an up front commission for 1% for life on the annuity. If you can really get 1% a year off account value, this is a gold mine for smart agents.
- Thread starter
- #7
- 547
This ruling seems to favor the annuity insurance companies (not the agents NOR advisors). NOW the insurance companies can wait to pay the commissions to the agent/advisor/broker (if they live long enough, maybe they'll collect what's owed).
In your example, the annuity was purchased in whole (that means somebody forked over 100k to purchase an annuity). So,...if an agent/broker/advisor "sold someone" a 100k annuity, why do they have to wait for years to collect their fee? Do Attorneys wait for their fee? What about Realtors when they sell a house?
If the insurance companies aren't happy with the commission rates or the DOL or "attorneys" (seem to be jealous because someone else is making money)....why don't they just get together and change the commission. THAT WOULD seem to solve everything.
(just saying)
- 11,457
I think we're going to see more trail options in addition to an up front commission. That's what ANICO did - a slightly reduced up front commission with an ongoing trail commission.
http://www.insurance-forums.net/for...fiduciary-regulations-t81579.html#post1092999
BTW, I emailed ANICO a few days ago and they aren't changing their compensation. A 5% up front and a .5% trail commission (not a hard charge against the account value) is still a lucrative transaction for a decent product.
Now, if they are taking out massive distributions, but within the 10% allowed, then the trails will decline every year as the trail is based on the account value in the annuity, but that's what would also happen in AUM too.
http://www.insurance-forums.net/for...fiduciary-regulations-t81579.html#post1092999
BTW, I emailed ANICO a few days ago and they aren't changing their compensation. A 5% up front and a .5% trail commission (not a hard charge against the account value) is still a lucrative transaction for a decent product.
Now, if they are taking out massive distributions, but within the 10% allowed, then the trails will decline every year as the trail is based on the account value in the annuity, but that's what would also happen in AUM too.
- Thread starter
- #9
- 547
- 11,457
Immaterial. With annuities in particular, it's about my knowledge and a complete fact find to determine if the annuity is a good fit or not. Since my compensation is based on the annuity purchase and not a hard charge against the client, it wouldn't matter if it was 1% or 10% up front. Why? Because of doing a fact find and backing up my recommendations in writing.
Remember that the DOL is against selling only for commission % or contest prizes, etc. But they are all for a comprehensive job and documented recommendations.
Remember that the DOL is against selling only for commission % or contest prizes, etc. But they are all for a comprehensive job and documented recommendations.
