- Thread starter
- #11
- 11,457
This regulation only applies to qualified retirement plans funding annuities.
It does not apply to life insurance.
It does not apply to life insurance.
The DOL Responds to 34 Questions
- Thread starter DHK
- Start date
The consumer will pay.
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Agents deserve to be highly compensated. Insurance companies should pay as much as they can to the agent and still remain competitive.
The average consumer is out of touch and only willing to pay $75-100 for financial advice. That probably explains why the average consumer typically will not be prepared for retirement.
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- 10,704
This only applies to Annuities funding an IRA or other Qualified Retirement Plan.
This does not directly regulate compensation. But compensation will have to be justified in relation to the overall annuity market.
In short, carriers will now take a hard look at their compensation practices and make sure they are in the clients best interest. And there are many that are not in my opinion.
Traditionally, some of the most uncompetitive products on the market have the highest comp on the market. Why do you think that is??
But the comp landscape is quickly changing. 3-5 years ago I could find you multiple IAs that paid 8%-10%. Now there are just a few in that range. Interest rates play a part in that, but the changing regulatory environment does too.
But even now things are way out of whack imo.
You have 10 year products at 6% comp, that are less competitive than their 7 year counterparts at 4% comp .... so why is it in the consumers best interest to get the 10 year option with lower caps? Why would the carrier even offer it at all?
The client is taking on more risk for less reward.... and the agent is getting paid more for giving the client a riskier option with less reward... how is that fair, honest, or logical ?????
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The consumer is paying a lot more for these artificially low interest rates than they ever will for comp or admin expenses.
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Agents deserve fair compensation and consumers deserve fair products. The last word in your second sentence is the issue at hand. Often, high comp and competitive product are mutually exclusive terms in the annuity industry.
This has nothing to do with consumers willingness to pay for advice. Consumers did not push for this regulation and annuity comp is a soft cost to the client, not a hard cost.
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This is my point. The backend comp charge is preferred by most middle income clients. The regulators are preparing to remove all commission and transition to fees. We have a difficult time getting middle income clients to plan for their retirement with the backend fees. I predict less will pay an upfront fee and the market will not be served.
The market with $2 million and willing to pay a 0.50 annual management fee will continue to be served. The incentives are not there for a client with $100K unless they are willing to spend a few thousand dollars for a plan. A few hundred dollars will not work and they will not receive any guidance. They will probably need to go with a robo advisor and hope for the best. In the long run, the middle income consumer will suffer by the acts of regulators trying to protect them.
I agree that the middle market will suffer but not for the reasons that you outlined.
If FIA products go to level comp (or no comp like GA's new product) but have better upside, that is an agent problem, not a client problem.
The question is, would you take on a 50-100k client if you had level comp on an annuity or were charging a fee in a 3rd party or robo portfolio? With this new legislation, the ability for that client to sue you and win becomes more likely.
That, imho, is why this market will become more underserved than it already is.
I agree.
Under such conditions, I would not take on such a client because the risk of being sued is too great! The smaller client represents a similar risk as a larger one. They smaller client would have to pay a similar fee or not receive service. It would be much better to serve fewer high net worth clients that are able to pay a fee that allows the agent to sustain their business.
The strong agents will not be affected they will just focus on where the opportunities exist to grow their business.
- Thread starter
- #18
- 11,457
So, how do you negate the risk?
1. Have a written plan. I'm not talking about a 50-100 page special. Just 3-10 pages maximum.
Page 1 - assumptions
Page 2 - current situation
Page 3 - proposed solution
2. Know how to defend your recommendations compared to anything else YOU work with. Why would you choose your preferred companies over others.
3. Return phone calls and if you make an error, fix it as quickly as possible.
I don't think it's that hard to avoid a lawsuit. The person with the most documentation will win. Besides, if you put it in writing for the client, the client will (may) remember why they bought what they bought from you in the first place.
1. Have a written plan. I'm not talking about a 50-100 page special. Just 3-10 pages maximum.
Page 1 - assumptions
Page 2 - current situation
Page 3 - proposed solution
2. Know how to defend your recommendations compared to anything else YOU work with. Why would you choose your preferred companies over others.
3. Return phone calls and if you make an error, fix it as quickly as possible.
I don't think it's that hard to avoid a lawsuit. The person with the most documentation will win. Besides, if you put it in writing for the client, the client will (may) remember why they bought what they bought from you in the first place.
I would add another page to this where the client agrees to binding arbitration.
The point is really to not get into the lawsuit in the first place...the cost alone will bankrupt a lot of reps.
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My company is doing a DOL Fiduciary Web summit on 11/18. Two of the carriers I work with (American National and National Western) are pumping in TONS of money into the lawsuits, so we decided we would share what we learned from the legal team. If you are interested, here is a link.
https://attendee.gotowebinar.com/register/9081996110531428100
https://attendee.gotowebinar.com/register/9081996110531428100
