Final DOL Fiduciary Regulations

[walthamny]

Dhk

I aggree with almost everything you are saying. However, there is also another class of people who wont survive the trails, that is the newbie.

Under the current rules, if in the 1st year you sell 1 million in annuities you make about 80k in commission. Pretty good income and lets admit very few people reach that. But lets say you get better and add another 1 million every year for the next 5 years. Under a commission based model you will do better and better.
Trail basis your income 1st year is 10k, 2nd year 30k, 3rd year 60k ignoring the growth in MV. Now your year 10 compensation looks great, but in most cities in America you can not survive this cash flow model. You will either quit, do something on the side( which means you cant grow your AUM like I projected) or sell some other product.

I think the biggest impact of this rule is going to be slowing down entry into the financial advisory workforce. We won't see that impacting for at least 5 to 10 years. There was nobody at DOL lobbying for the newbie so it is no surprise the future of the industry got the worse of the new rules.

 

[scagnt83]

Dhk

I aggree with almost everything you are saying. However, there is also another class of people who wont survive the trails, that is the newbie.

Under the current rules, if in the 1st year you sell 1 million in annuities you make about 80k in commission. Pretty good income and lets admit very few people reach that. But lets say you get better and add another 1 million every year for the next 5 years. Under a commission based model you will do better and better.
Trail basis your income 1st year is 10k, 2nd year 30k, 3rd year 60k ignoring the growth in MV. Now your year 10 compensation looks great, but in most cities in America you can not survive this cash flow model. You will either quit, do something on the side( which means you cant grow your AUM like I projected) or sell some other product.

I think the biggest impact of this rule is going to be slowing down entry into the financial advisory workforce. We won't see that impacting for at least 5 to 10 years. There was nobody at DOL lobbying for the newbie so it is no surprise the future of the industry got the worse of the new rules.

Things will not be just trail based. The new regs specifically state that they allow commissioned based and lump sum compensation. It just has to be reasonable is the only expectation. So there will be more uniformity in commission percentages. Say goodbye to 10% FIA comp, hello 5% if you want a lump sum. (maybe 6% if interest rates ever go back up)

But I like the combo options. And I think that we will see more options that are in the 2%-4% range for first year comp, but then pay a trail of 25bps or 50bps in years 2+.

 

[DHK]

I'm thinking about two things for the newbie agent.

1 - they're not going to get double-digit compensation. I would guess that "reasonable" would be about 5% up front and up to 1% per year. $200k per month would be $10k. Its already less than that at career agencies, especially with b/d grids.

2 - I kinda doubt that most new people should be selling annuities on their own without good guidance and mentoring. Annuities are complex. New people would probably be best taught about life insurance and grow into annuities and retirement planning.

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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!

Good post and good assessment.

The more complex the product, the more it favors "the house" over the consumer. That's why I favor simplicity over the glitz of high up front bonus products. Easy to explain products keeps expectations simple and attorneys away!

 

[scagnt83]

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...

Excellent point. Welcome to the forum. Im sure that there will be a few that jump on the fixed only train and make that their bread and butter. And it will likely be very profitable for them.

Id bet that we will see the rise of more GLWBs on MYGAs and Fixed Rate Annuities, due to this as well.

 

[walthamny]

So in some ways they tried to regulate FIA's as securities, that failed in court, now they went around and got DOL to regulate them indirectly when qualified money is used for FIA purchase. I am happy to see the life licensed guy who jumps into FIA's sales through seminars and tells everyone who shows up for the free meal to put all their money into FIA's. They tried to regulate these guys and finally they got some handcuffs on them. I blame partially FINRA and SEC, state insurance departments for not doing their job and leaving the door wide open for DOL to come in.

 

[Gulfman]

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.

I hear what you are "saying"....but i don't agree with the Concept of "Fiduciary responsibility for a comm.paid sales person." Its a contradiction of Terms. (if an advisor gets paid UP FRONT for advice ie advisory fee), then sure, he better know every-thing under the sun and even then, have some real good EO. Sooner or later, he's gonna get sued....Guaranteed.

FIDUCIARY
In the past 2 mths, i've had a Flooring specialist, Roofing Specialist and Plumber come my house.

• Flooring guy has been in biz, 20yrs+, showed me all the products he represents and sells. HOWEVER, there were a few that i saw at a Retail store that he doesn't sell. He's charging 5k for a floor job. Does he has a Fiduciary with me???
• Plumber gave me a quote on re-piping. Does he have a Fiduciary with Me???
• Roofer...same thing. Does he have a Fiduciary with Me???
• Realtor...sells me a house. Does he have a Fiduciary with Me???
• Mortgage Guy....gets me a mortgage. Does he have a Fiduciary with Me???

*What different about these guys than an insurance agent? If any of these sales guys KNEW they had a Fiduciary responsibility, they would burn in their lic. and go sell hotdogs. I can get my Litigation Aty to "Tear Anyone" to shreds who has a Fiduciary Relationship with their clients.

*AGAIN, the NAR took this issue to the Administrative courts and had the states change the law. Its a time bomb waiting to explode. Not good. (Hope your E/O has high coverage amounts).

Ex. Realtor sold me a house 2 yrs ago. I find out 2yrs later, i could have gotten a better deal, dealing directly with the BANKS---reo department. Did the Realtor violate his fiduciary agreement with me? According to fiduciary rules, HE SURE DID! He should have known (and probably did) that i could have gotten a better deal, directly from the Bank. Or that i could have gotten and even better deal going to the court-house steps and paying cash for a house. TIME TO SUE!

*Its a time bomb waiting to blow up,...and the dirt bag attorney's are just waiting for a PSYCHOPATHIC client to sue the next poor b****tard agent, his E/O insurer, and the company that wrote the policy.

*Pschopathic Litigation attorneys are everywhere in my area. They sue anyone and anything.

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.

THREE KINDS

1. This is a given. Some won't last because they don't have the "staying power" (don't have 12mths reserves to cover their expenses).
2. Paid to serve their clients over time? (Your suggesting that my client will live and do business with me over time. This is not always true. People are ppl and they are fickle as hell. One day you are a Hero, the next day you are the Enemy.
3. LOL...i don't know anyone who doesn't have bills. Even those who own their house and car outright.

***i hope you see the problem with being in a Fiduciary and Trailing Commissions.

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.

EVERYONE who sells for a living gets paid to CLOSE a Transaction. Dragging out commissions is a SNEAKY way for Ins.Companies to circumvent paying their 1099 employees in a timely fashion.

ME: "Ok Mr. Allianz Co., did i do my job by closing a transaction with a "suitable client" who forked over 250k for a fixed indexed annuity?"
ANSWER: "Yes you did!"
ME: "Good----Pay me my 7%---now---not next year!" (what do i tell my landlord, i'll pay him as soon as my FMO sends me my check from commissions earned 3yrs ago).​

NEXT POINT (s)

1. You think these companies you are selling for today, will be in business 10yr from now? Perhaps they will get bought out...you have enough confidence to "stake" your FINANCIAL Future cash -flow payments on this CONCEPT? Your Retirement income?
2. You think your FMO will be in business, or the CEO in business 10yrs from now???? Really ????
3. You have no control over the future of these companies. They could be shut down by Regulators, etc., Bought out, future disbursements wiped out.
4. When i Produce a Sale, I want to be paid TODAY, for a product i sell TODAY. My job is to find a client who needs my product and close them...PERIOD. I don't do it for "some promise" that i might be paid in the future....(how the hell do i know how long i'm going to live?)
5. I'll take the my $ now...PLEASE. I know how to invest it.

***PS. DK, Thanks for your comments. While i don't agree with them in philosophy, the industry is "what it is!"



~g

 

[DHK]

First, the burden of proof will be on you. It's good to be paranoid because they really ARE out to get you.

http://www.insurance-forums.net/forum/annuities-forum/lawsuit-protection-best-practices-t66214.html

Second, regarding whether insurance companies will be around to pay you... well, shouldn't you have the same due diligence to make sure those same insurance companies are around to PAY YOUR CLIENTS???? After all, we're talking about annuities... an income stream. The same company you're selling to your client is the same company that is paying you. If you don't trust the company to pay you, you shouldn't sell it. Period.

(It's not meant to be personal - but since you brought it up, I thought I'd create a response.) Tell your landlord that you'll do a better job of managing your money so that you have a cash reserve, line of credit, and live on less than you earn.

 

[Gulfman]

Dhk

I aggree with almost everything you are saying. However, there is also another class of people who wont survive the trails, that is the newbie.

Under the current rules, if in the 1st year you sell 1 million in annuities you make about 80k in commission. Pretty good income and lets admit very few people reach that. But lets say you get better and add another 1 million every year for the next 5 years. Under a commission based model you will do better and better.
Trail basis your income 1st year is 10k, 2nd year 30k, 3rd year 60k ignoring the growth in MV. Now your year 10 compensation looks great, but in most cities in America you can not survive this cash flow model. You will either quit, do something on the side( which means you cant grow your AUM like I projected) or sell some other product.

I think the biggest impact of this rule is going to be slowing down entry into the financial advisory workforce. We won't see that impacting for at least 5 to 10 years. There was nobody at DOL lobbying for the newbie so it is no surprise the future of the industry got the worse of the new rules.

There was nobody lobbying for the INDI AGENT (in fact, i would bet that Financial Advisors lobbying for it---less competition, bump out the agents to sell against).

More Regs, less $----its "the socialist way!"

What i don't get it this. You persuade a client to purchase an annuity. They part with 6 figs to the ins.companies. Ins. Co. has the money, NOW they control your commission ----in their bank BTW.

***NOT GOOD...I don't like the idea of any company controlling when i receive my comm. checks. I'm sure that some of them will go out of business before i die.

First, the burden of proof will be on you. It's good to be paranoid because they really ARE out to get you.

http://www.insurance-forums.net/forum/annuities-forum/lawsuit-protection-best-practices-t66214.html

Second, regarding whether insurance companies will be around to pay you... well, shouldn't you have the same due diligence to make sure those same insurance companies are around to PAY YOUR CLIENTS???? After all, we're talking about annuities... an income stream. The same company you're selling to your client is the same company that is paying you. If you don't trust the company to pay you, you shouldn't sell it. Period.

(It's not meant to be personal - but since you brought it up, I thought I'd create a response.) Tell your landlord that you'll do a better job of managing your money so that you have a cash reserve, line of credit, and live on less than you earn.

my friend...i don't doubt you. I've sued and been sued. Lost when i should have won. That's life.

NOW, if i had "a crystal ball" i could tell you who was going to win the world series this year (as well as call the future's index----in which case i wouldn't be discussing regs. on indi insurance agents).

LOL...fortune has shined on me. My house is paid for. BUT, rent at the office, bills come up and kids need clothes and food. That's life. After hearing more BS from Regulators, i think life insurance is NOW a better gig.



.

 

[DHK]

The same company controls when your clients receive their checks too.

You don't have a fiduciary mindset about this (yet). You're more concerned about being paid yourself than seeing things from your client's perspective.

Are you a NAIFA member? They're the industry lobbying association for life insurance, annuities, and financial services in general. (Membership has been declining though.)

Are you a member of AALU? They're also an industry lobbying association primarily for life insurance.

----------

Again, if you have doubts about companies going out of business before you die... you shouldn't be selling that company's products to your clients.

 

[Gulfman]

The same company controls when your clients receive their checks too.

You don't have a fiduciary mindset about this (yet). You're more concerned about being paid yourself than seeing things from your client's perspective.

Are you a NAIFA member? They're the industry lobbying association for life insurance, annuities, and financial services in general. (Membership has been declining though.)

Are you a member of AALU? They're also an industry lobbying association primarily for life insurance.

----------

Again, if you have doubts about companies going out of business before you die... you shouldn't be selling that company's products to your clients.

I am a NAIFA member. Nice group of people, BUT WEAK (at best) is what i would describe as their lobby. Their more of a continuing ed, social experience. Lobby for NAIFA???? Where were they?

-------
How long you been in the biz world?
One of the biggest FMO's in the SE bought out another FMO here in my metropolitan area. LOL...i'm sure some commission checks got lost in the shuffle. Prior to this gig, i had a mortgage company. We avg. between 50-70 mill/yr gross. I saw HUGH "AAA" RATED companies get SLAUGHTERED; they were supposed to be around to do business with my Grand-kids. Tell me the Future,...if you can?


Oh Well...(sigh)