Final DOL Fiduciary Regulations

[BYSFG]

Two concerns in the captive situation:

1. how to make a reasonable recommendation, knowing that other carriers may have more favorable features.

2. by the example of criteria/standards, unless I could go independent, I would essentially be walking away from some potential business, more than I might like

If this was the case, I believe we'd all be in a **** storm.

There are "bad" products out there that pays HUGE commissions... and there are good products out there that pay out decent commissions. Under the fiduciary rules, you need to sell the good stuff and treat your clients right.

I don't think it's really that hard.

This hits the nail on the head. Who wants their client to come after them in the first place let alone "big brother." Maybe Im just chicken when it comes to that.

Like my upline says, less is always more. Do right by your clients and theyll market for you -in means of referral etc. Not sure about the gen. population in the forums here but I feel good knowing I help educated/bring awareness to a family even if I dont walk away with an immediate app. -Forever poor.

 

[scagnt83]

Proprietary products (captive sales) are covered under the BICE clause. There will be changes to how suitability is judged for captive sales, but it will still be allowed. Essentially, it says that firms must make sure that one of the products available is able to meet the BICE requirements.


As far as "what is in a clients best interest?". Best interest is not based on outcomes or rate of return. It is based on suitability, and full disclosure of compensation and any possible conflicts of interest.


DHK,
You asked about any possible mandates to comp disclosures. Under the BICE requirements, "the Advisor must disclose all compensation both direct and indirect".

So yes, we will have to disclose commission %s or possibly even dollar amounts as part of the sales process. And yes, I do mean sales process and not at the time the contract is signed. They consider comp a possible conflict of interest that is vital to the decision making process.

 

[DHK]

I'm curious as to what forms the carriers will create for us to have the clients sign at the time they sign everything else?

Of course, if we have a higher %, we can easily say that we're better at this job than others, so our companies give us a higher % because we do a great job for our clients.

It's all in how you spin it, as long as the recommendation is in the best interest of the client. I just don't want the perception of a large commission to interfere with the sale, or in asking for professional introductions to others that they know.

 

[Tahoe Ray]

I'm curious as to what forms the carriers will create for us to have the clients sign at the time they sign everything else?

Of course, if we have a higher %, we can easily say that we're better at this job than others, so our companies give us a higher % because we do a great job for our clients.

It's all in how you spin it, as long as the recommendation is in the best interest of the client. I just don't want the perception of a large commission to interfere with the sale, or in asking for professional introductions to others that they know.

NY has had compensation disclosure requirements for 5 years.

The client signs a form stating that they have the right to ask you how much you're making and that you have to disclose it if asked.

That being said, I know a few advisors (typically RIAs, who are already held to a fiduciary standard) who routinely disclose compensation as part of their sales process/compliance.

I don't know what that looks like in practice, I have just had requests for the exact compensation on a case so that it can be included in client disclosures.

Who knows what this requirement will look like.

 

[Gulfman]

I think we all have products in our lineup that we like and products that we don't. The products that we don't like, we either don't understand them, or we simply don't like some of the terms and conditions. Under the fiduciary rule, you will never sell a product that you don't like and don't fully understand.

Take ANICO's ASIA annuity vs their Value-Lock annuity. Under the suitability rules, I could still sell the Value-Lock annuity and earn the same compensation as I would earn if I sold the ASIA annuity (they pay identical commissions). But I don't fully understand the Value-Lock annuity yet. (I'm trying not to publicly state that I don't like it. I just don't see it's appeal yet.) Until I know where it best fits, I'm not going to sell it... period. There are other products that I'm perfectly comfortable with that are just fine for most people.

There are "bad" products out there that pays HUGE commissions... and there are good products out there that pay out decent commissions. Under the fiduciary rules, you need to sell the good stuff and treat your clients right.

I don't think it's really that hard.

1. I agree with limiting your product line to 2-3 companies. HOWEVER, would you really be able to testify "in a court of law" that you represented your fiduciary role when other products (that you simply didn't know about BUT in fact "were better" but you either didn't know them or they weren't available for you to sell?---could you tell a jury this and win? (i don't think so). *there are so many products and companies out there that it would be difficult at best to do.
   
2. Trailing commissions is just another way for insurance companies to BORROW money. NOW, they are stouping to borrowing $ from their agents. I don't agree with this AT ALL. What is the point of trailing comm? It has nothing to do with suitability. In fact, it is just going to make it more difficult for newer agents to enter the annuity sales market. At this point its apparent that companies are betting that the agent dies before he receives his pay. This is not right. I think, if you sell a product (any product) you should get paid....right there on the spot. What's with the "holding back my comm.?"

Not trying to bust chops but facts are facts.

AGAIN, if the insurance lobby was as strong as the Realtor Asc., we wouldn't be having this discussion.


*appreciate your posts and input
.

 

[scagnt83]

Trailing commissions is just another way for insurance companies to BORROW money. NOW, they are stouping to borrowing $ from their agents. I don't agree with this AT ALL. What is the point of trailing comm? It has nothing to do with suitability. In fact, it is just going to make it more difficult for newer agents to enter the annuity sales market. At this point its apparent that companies are betting that the agent dies before he receives his pay. This is not right. I think, if you sell a product (any product) you should get paid....right there on the spot. What's with the "holding back my comm.?"


Not trying to bust chops but facts are facts.

AGAIN, if the insurance lobby was as strong as the Realtor Asc., we wouldn't be having this discussion.
.

I dont agree at all. Comp does not affect suitability, but it can affect an agents bias when making recommendations.

Also, a 1% trail will pay you more over the long run than even the highest first year comp product. The average 10 year product is in the 5%-7% range. That means in 4-6 years you will have made more than the upfront comp (because its 1% of an increasing number... hopefully increasing each year... lol)

Trail commissions cost the carrier more over the long run, not less. Also, it is something that has been requested by agents for years now. I am a big fan of trail comp options for larger cases.

I do agree that it can make it harder for new agents. But that is why there are multiple comp options on products. The new DOL regs do not prohibit lump sum comp at all. They just say it must be "reasonable" as compared to the competition and overall market.


But I 100% think that comp affects recommendations. I have seen it in person and ive seen it on this forum.
Someone pitches a 10 or 12 year product that pays 8%.... I ask them why not this 7 year product that has better Caps/Spreads and historical lookbacks? Then it is just a bunch of jumbled excuses about "being comfortable with this product" or "the client really likes what ive pitched already" or just "im not sure".

When the shorter term and lower comp product is the best fit, but the longer term and higher comp product is being sold.... there is no reason for it other than comp or incompetence.

 

[DHK]

1. I agree with limiting your product line to 2-3 companies. HOWEVER, would you really be able to testify "in a court of law" that you represented your fiduciary role when other products (that you simply didn't know about BUT in fact "were better" but you either didn't know them or they weren't available for you to sell?---could you tell a jury this and win? (i don't think so). *there are so many products and companies out there that it would be difficult at best to do.

1. 
   
   Of course. Why? Because your fiduciary duty includes your own personal due diligence on deciding which companies and which of their products you choose to represent and place with your clients.
   
   There may be companies with "better products" out there, but if you (or your client) can't fully understand it, but you decide to sell it anyway... are you fulfilling your fiduciary duty? No, you are not. (Look up the Alan Lewis case in California who didn't understand how and when bonuses would be credited to the annuities he sold.)
   
   What if those better products came from a B rated carrier? Are you fulfilling your fiduciary duty by recommending a lower rated company? I suppose it depends on YOUR comfort level as well as if the client is aware and accepts the fact that the company isn't an A rated company.
   
   So, yes, my due diligence is a PART of my fiduciary duty. Yes, it's my job to "stay on top of" new product developments from various companies. But regardless of someone's OPINION (including an attorney's) of whether another product is "better or not", the best way to avoid being in a complaint in the first place is, in my opinion:
   1) Offer products that are SIMPLE to understand
   2) Offer products with companies that have at least an A- rating with a stable outlook.
   3) Generally low cost
   4) Shorter surrender periods compared to other company's products
   5) Offer ME a decent compensation for selling it. (No, I don't do this for free, but it's not the first factor to consider.)
   
   Remember: I'm in California - the land where you can be ARRESTED for selling annuities. If you don't do your own due diligence... someone else will do it for you.
   
   

   1. Trailing commissions is just another way for insurance companies to BORROW money. NOW, they are stouping to borrowing $ from their agents. I don't agree with this AT ALL. What is the point of trailing comm? It has nothing to do with suitability. In fact, it is just going to make it more difficult for newer agents to enter the annuity sales market. At this point its apparent that companies are betting that the agent dies before he receives his pay. This is not right. I think, if you sell a product (any product) you should get paid....right there on the spot. What's with the "holding back my comm.?"

   
   Not trying to bust chops but facts are facts.
   
   AGAIN, if the insurance lobby was as strong as the Realtor Asc., we wouldn't be having this discussion.
   
   
   *appreciate your posts and input
   .

   
   There are THREE kinds of people that don't want trail commissions:
   1) Those that won't last.
   2) Those that don't want to be PAID to serve their clients over time.
   3) Those that have large personal bills they want to get paid off quickly.
   
   Not trying to bust your chops, but facts are facts.
   
   I happen to LIKE this idea.
   
   Imagine this - you are SUCCESSFUL in selling large annuities and over a period of 10-20 years, you have $100 million of annuities on the books... paying you a TRAIL commission of .5% per year.
   
   $100 million x .5% = $500,000 per year JUST for serving your clients! (Of course, the trails go down as clients withdraw from their annuities, so it won't stay level. I'm quite sure that the trail commission is based on the CASH account value of the annuity, not the payments. However, you can reasonably be sure to get a higher cumulative trail commissions over 20 years over the up-front bonus.) If you have another $100 million in AUM (securities) averaging 1% to you, you could have another $1 million of revenue to your practice. You won't have to prospect as much and you essentially have a FIDUCIARY DUTY (there's that term again) to meet with your clients and review their situation! The best kinds of agents & advisors do this on a regular and disciplined basis.
   
   This also means, that if you service your book properly, that this law just INCREASED the value of your business if and when you decide to sell it! Trail commissions on a book of business means you can sell your book for a LOT more.
   
   
   There's another BIG side benefit here for the INDUSTRY: Less replacing of policies just for agents to get paid. If products sold today have a trail, and the client decides to make an agent change, now the new agent can be COMPENSATED for selling old business! I think that has a very positive effect.

 

[scagnt83]

This also means, that if you service your book properly, that this law just INCREASED the value of your business if and when you decide to sell it! Trail commissions on a book of business means you can sell your book for a LOT more.

Not just a lot more.... you will actually be able to sell it period. There is no market for a BoB if it is not generating income for the person buying it.

If there are no trails, you are essentially buying warm leads that you hope to make future sales to... and how much are you really going to get for that? The idea is that you can move them to a new product when surrenders are up. But there is no guarantee that will happen, or that they will even pick up the phone and talk to you.

----------

Once you get used to trail based income you start to appreciate its value more and more. It is a MUCH more valuable business model vs. one time commissions. You are actually building an asset that you can sell with taking trail based income.

Think about a $500k case.
I can take 5% upfront and get a nice payday of $25k
But if I take 1% trails, then I get $5k per year, increasing at 2%-5% per year, for the next 10/20/30 years. In just 3-4 years you would equal the lump sum comp. The next 3-4 would put you more than double the lum sum comp. And in 15 years when your pulling in a steady $8k per year from that client... you will love those trails.

 

[KVO]

Please remember, there are still 3 fixed annuities that keep their PTE 84-24 exemption; traditional declared rate fixed annuities, MYGAs and SPIAs. So the carrier who "goes old school" comes out with a compelling declared rate SPDA (5, 7, and 10 year, maybe a small bonus, 1 to 2% lifetime guaranteed floor, decent - uncomplicated income rider, decent 1st year rate and keeps renewal rates pretty well and pays reasonable comp) will score big and gather nice Q business WITHOUT us having to fill out the BICE forms that are sure to follow...

We agents and the carriers who manufacture FIA products have been our own worst enemies...IF we had kept FIAs simple, the way they used to be (1 to 2 simple crediting methods and 1 to 2 indices, and incorporate simple - low cost income riders) the FIA may have kept the exemption. but we didn't and they got lumped into the VA space...

Let me get out my crystal ball...IUL is next! Agents are calling them investments (they're not) and saying the loans the client gets is income (it's not) - and when I see all of the crazy indices and crediting methods and fees they now have - scares me for their future as well!

 

[scagnt83]

And think about selling a BoB with Trail Commissions of $200k per year once you retire. (thats only $20mm over your entire career)

Most Investment Advisors get a multiple of around 6-8 times their yearly revenue. And that is a work intensive BoB that requires quarterly reviews. (not with the client necessarily, but you at least have to review their portfolio on a quarterly basis... hopefully more than that though.. lol)

But an annuity BoB would only require yearly reviews and not quarterly reviews. So you should get a higher valuation than the Investment Advisor. Hopefully in the 7x-10x range.

Say worst case scenario and you get 7 times $200k. That is a $1.4mm retirement asset you are sitting on, minimum.

Or you can hire some mom who got licensed but doesnt want to work full time... and just let her help you service your book during retirement. Pay her a $50k salary and you have a $150k retirement income.