- Thread starter
- #11
- 547
DOL Unintended Consequences?
- Thread starter Mike Siegal
- Start date
- 11,457
I am not, but I'm also not sure what that would have to do with anything.
Even if I was an RIA (or more specifically an IAR for either my own RIA or someone else's RIA), all that would be required would be to disclose that there may be a conflict of interest due to insurance up front compensation being in favor of the annuity, and disclose insurance sales as an outside business activity.
However, in reality, the AUM model has the greater earning potential as AUM fees may be as high as 2-3% each year for as long as you have the account. The advisor may get up to 1/2 of that 2-3%... so I would suggest that the IAR with an RIA would have the greater "conflict of interest" along with potential market risks.
http://www.insurance-forums.net/for...ating-financial-planning-aum-fees-t87666.html
https://www.kitces.com/blog/the-4-different-types-of-financial-advisor-fiduciaries/
- Thread starter
- #13
- 547
Thanks DHK...
I'm not getting it all...BUT it sounds like you are a license in LH and not security licensed in anyway, so...there's no conflict of interest? AND you probably don't give advice as a fiduciary....AM I RIGHT?
- 11,457
We need to define a 'conflict of interest'. EVERY business model has 'conflicts of interest' for the mere FACT that we are compensated for either selling products or giving advice.
The AUM model of RIAs would convince you that they are the "fiduciary gods" because "their interests are more closely aligned with their clients than anybody else".
Baloney.
Can an AUM investment model help with longevity risk? No. Only annuities do that.
Do AUM investment models protect principal from market risk? No. They may have risk-adjusted models, but you cannot GUARANTEE the principal.
I can give advice in any way I want - aside from making recommendations about securities (buying, selling, holding, or any analysis), legal, or tax advice. I provide written plans and document my strategies in such a way that people can understand them.
Am I a fiduciary? I'm not sure I can say that. I can say that I am a professional and I don't just "sell product to sell products".
BTW, to be a true fiduciary requires legal agreements including a letter of engagement, the scope of the engagements, what is covered and what isn't... and a significant fee to be paid. Now, I know there is at least one poster on here that does exactly that. He holds himself out as a fiduciary insurance agent and has the analyst insurance license and legal agreements to back it up.
If I'm selling an annuity under BICE, then I must be a fiduciary in order to determine the nature of where their account is now - including risk, return, and cost... and compare it to what I would recommend and if the client understands and wants my recommendation.
I may not be a 'fiduciary', but I am a professional in every sense of the word. Plus, I uphold The American College code of ethics as I am a ChFC designation holder.
https://www.theamericancollege.edu/about-the-college/community-responsibility/code-of-ethics
For now though, I'm taking a break regarding annuities until the 'dust settles' on all this. I want to see how most companies react to everything, how paperwork is adjusted, etc.
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Btw, I don't see myself ever getting securities licensed again. All this "ongoing advice for a fee"... is another way of saying that you get paid to babysit, monitor, and parent your clients into not making mistakes. Coincidentally, that's how FINRA treats their registered reps - they babysit, monitor, and 'parent' them.
I can help people to avoid mistakes without requiring securities licensing.
The AUM model of RIAs would convince you that they are the "fiduciary gods" because "their interests are more closely aligned with their clients than anybody else".
Baloney.
Can an AUM investment model help with longevity risk? No. Only annuities do that.
Do AUM investment models protect principal from market risk? No. They may have risk-adjusted models, but you cannot GUARANTEE the principal.
I can give advice in any way I want - aside from making recommendations about securities (buying, selling, holding, or any analysis), legal, or tax advice. I provide written plans and document my strategies in such a way that people can understand them.
Am I a fiduciary? I'm not sure I can say that. I can say that I am a professional and I don't just "sell product to sell products".
BTW, to be a true fiduciary requires legal agreements including a letter of engagement, the scope of the engagements, what is covered and what isn't... and a significant fee to be paid. Now, I know there is at least one poster on here that does exactly that. He holds himself out as a fiduciary insurance agent and has the analyst insurance license and legal agreements to back it up.
If I'm selling an annuity under BICE, then I must be a fiduciary in order to determine the nature of where their account is now - including risk, return, and cost... and compare it to what I would recommend and if the client understands and wants my recommendation.
I may not be a 'fiduciary', but I am a professional in every sense of the word. Plus, I uphold The American College code of ethics as I am a ChFC designation holder.
https://www.theamericancollege.edu/about-the-college/community-responsibility/code-of-ethics
For now though, I'm taking a break regarding annuities until the 'dust settles' on all this. I want to see how most companies react to everything, how paperwork is adjusted, etc.
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Btw, I don't see myself ever getting securities licensed again. All this "ongoing advice for a fee"... is another way of saying that you get paid to babysit, monitor, and parent your clients into not making mistakes. Coincidentally, that's how FINRA treats their registered reps - they babysit, monitor, and 'parent' them.
I can help people to avoid mistakes without requiring securities licensing.
Your answer to this is a plain and simple yes when it comes to IRAs.
If I sent you some of the BGA selling agreement addendums that we are starting to get you would fall over.
The entire upline (except for the carriers, of course) are being considered fiduciaries.
If a client sues an agent under these new regs, an attorney will absolutely name everyone in the food chain.
I couldn't imagine taking on a broker that I haven't met/talked to/know under these regs.
It is absolutely crazy and "taking a break until the dust settles" is a solid idea.
Edit: I know that for most agents what I described isn't a concern. However, know that if we're dealing with these changes, your liability is likely to be much higher...
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- 10,703
Unintended consequences have already been covered for months now on this forum. In short, a lot fewer options for people who do not have $1mm in IRA assets to put with a single advisor.
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FIAs will not be forced into a 1% trail as some have mentioned. Not unless Mutual Funds do too... which we all know wont happen anytime in the next decade. It will certainly be a more common option to choose from though (it already is).
Id say over half of FIAs out there already offer trail options. That is a trend that started even before the DOL Regs hit.
FIA comp will just be more in line with Mutual Fund comp. And you will see shorter surrender periods. Both are good things for clients and the industry imo.
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Not necessarily a gold mine. You are correct that selling an Income Rider is essentially a lifetime contract. But there is an issue there with taking a flat 1%.
The issue is that the Rider Value is much higher than the Account Value... that means the income being paid out, will be a significant % of Account Value... like in the 10% range on average if I had to guess.
That means your Account Value will be cut in half within 5-10 years of taking income.
Its not like having true AUM with just 4% a year coming out and it takes 30 years for the account to dwindle down.
Of course, if most of your clients are 10-15 years away from taking income, it makes a lot more sense. But with anything under 10 years, I think an argument could be made to take Opt 1.
Plus you have to account for the "time value" of the money. It takes you 5-6 years to break even vs. heaped comp.... then after 10 -15 years you might have double or more.... finally... depending on when they start taking income.
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FIAs will not be forced into a 1% trail as some have mentioned. Not unless Mutual Funds do too... which we all know wont happen anytime in the next decade. It will certainly be a more common option to choose from though (it already is).
Id say over half of FIAs out there already offer trail options. That is a trend that started even before the DOL Regs hit.
FIA comp will just be more in line with Mutual Fund comp. And you will see shorter surrender periods. Both are good things for clients and the industry imo.
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Not necessarily a gold mine. You are correct that selling an Income Rider is essentially a lifetime contract. But there is an issue there with taking a flat 1%.
The issue is that the Rider Value is much higher than the Account Value... that means the income being paid out, will be a significant % of Account Value... like in the 10% range on average if I had to guess.
That means your Account Value will be cut in half within 5-10 years of taking income.
Its not like having true AUM with just 4% a year coming out and it takes 30 years for the account to dwindle down.
Of course, if most of your clients are 10-15 years away from taking income, it makes a lot more sense. But with anything under 10 years, I think an argument could be made to take Opt 1.
Plus you have to account for the "time value" of the money. It takes you 5-6 years to break even vs. heaped comp.... then after 10 -15 years you might have double or more.... finally... depending on when they start taking income.
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- 15,041
All fair points, but I hope you recognize mine.
Sure, you would need to sit down and decide what you wanted to do on each case, assuming you wanted to maximize your commission and it did not affect the client. However, if you are putting someone into an indexed annuity with several years to distribution, that could be a powerful income stream.
Obviously I am just putting it out there as it occurred to me, without trying to work through all the scenarios. Since I don't actively sell annuities, it is more a thought exercise than my plan for the future.
- 11,457
I have no problem being held to a fiduciary standard. I have a problem with the actual DOL bill requiring a financial institution to also share that standard for independent agents which is shaking everything up in the annuity world. It's also more about how firms are (over)reacting far beyond what the ruling requires in order to avoid legal complaints.
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Many customers will be 'taken advantage of' (I could have used different wording!) by the new rule. Take the 75 year old widow who has $800,000 in an IRA account. She has solid mutual funds and maybe a few stocks and bonds. She never (or hardly ever) trades. She will probably be put into a managed account costing 1% per year since the commission model is being taken away from her. That is $8,000.
What value is she getting for her $8K?
What value is she getting for her $8K?
