Agencies Reveal DOL Opportunity – Special Coverage
The Department of Labor’s fiduciary rule inspired many protests against the damage the regulation will inflict on businesses. Some also pointed out opportunities presented by the rule.
Although we have heard quite a bit about the potential damage, we haven’t heard much detail about the opportunities. So, InsuranceNewsNet Publisher Paul Feldman and other INN staff members spoke with insurance marketers at the National Association of Life Brokerage Agencies annual meeting in November.
The meeting was after the election, so the respondents knew the rule is likely to be challenged by the Trump Administration. But they said that many of the changes are still likely to remain.
Innovative Solutions Insurance Services
Our organization does not do a lot of annuities, however, we do work with a lot of financial professionals. My goal is to continue emphasizing the importance of insurance planning for not just their top customers but for all of them. And perhaps they’ll have more of a focus in listening to that story.
I also think that the insurance companies in 2017 are moving quickly toward more of a drop-ticket, accelerated underwriting process. That will match very well with what advisors are used to with selling an annuity on a drop-ticket basis.
Right now, the process of buying or selling life insurance is a miserably long and difficult one. So as we utilize technology and move toward more automation, bloodless, urineless, APS-less underwriting, the investment advisor will embrace this far more. And hopefully they’ll have another reason to start looking more at life insurance than they have in the past.
Vice President, Senior Business & Product Development Officer
One America Financial Partners
There are changes that have been set in motion by the DOL that are likely to continue to fruition even if there is a delay or repeal. Through the DOL review process, both carriers and distributors have identified changes to their business models that make sense and add value in the long term.
For us, the biggest impact is in our retail system. It’s creating a more concrete view of what we want to offer and how we’re going to do that. We’re creating a robust product and service environment for our agents to meet the needs of their clients, but it’s not necessarily a wide-open architecture approach. I think you will see this theme across the industry. Companies, distributors and advisors alike will be more selective and move to a more limited, but still comprehensive, product shelf offering that will meet the best interests of their clients.
You’re going to see distributors and carriers evaluating their relationships and looking to make sure that the way they’re doing business still makes sense. It’s just looking at how you align your businesses and who you’re going to work with to make sure everyone’s adding value and that it makes sense to keep doing business the way you are. This is a healthy exercise any time, and the DOL rule, while ill-conceived in many respects, has simply created the current impetus.
When it comes to disclosure, some of those things are going to be uncomfortable for advisors when they first start. We have tried to focus on how to use that as an opportunity to explain and reveal the value you provide.
I do think you’re going to see some downward pressure on compensation structures. Anytime you initially disclose costs (or compensation), there’s a natural tendency to make a value judgment and try to discern if they could/should pay a little less. That’s a natural human reaction. But, generally, people don’t purchase the cheapest thing (or view the cheapest as the best value) in most things that they buy, so why would they go for the lowest cost financial product or advice? You always get what you pay for. Again, this is an opportunity to explain to clients all the services provided and help them understand the value.
The Leaders Group
Retail producers are going to expect a lot more robust technology to help them. But they’re going to be doing different business than they’ve done in the past because the Department of Labor rule is going to impact them across the business that they do. We’re going to try to make it simple.
For the general agents, it’s creating the biggest opportunity to sell life insurance with broker/dealers that we’ve seen. Particularly in the wirehouse space, there’s not going to be anything that we’ve seen that was this disruptive or this much of an opportunity.
Nobody is looking at life insurance right now. A hundred percent of the effort is being spent on annuities, mutual funds and managed money. Between now and Jan. 1, we’re going to have to come up with the expectations of what the policies and procedures look like to sell life insurance.
Financial advisors are going to have to do a financial plan for their customers, which they’ve not all done in the past. We know that 98 percent of the advisors in the wirehouses are licensed to sell insurance because they sell annuities.
If somebody is licensed to sell life insurance and doing a financial plan that does not include life insurance, we believe there’s a high possibility that the firm can be sued in a class-action lawsuit. They don’t have to sell life insurance but they have to provide that information if they’re doing a financial plan.
The penetration of life insurance in the wirehouses has been at 2 percent at least since I started the business in 1979. It’s still there now.
I think this is going to give the opportunity for the industry to get penetration that could be as much as 10 to 15 percent.
That would be a good deal for the industry. It’s also a good deal for consumers because, as we all know, we’re more uninsured than we’ve ever been.
If we become a financial institution, this is what’s going to change for the agent – more documentation first and foremost.
They have to justify the sale and justify the product. They’re used to doing some of that but not used to doing all of that and definitely not putting it on paper. So they have to do much more documentation than they’re doing today.
We will probably as a financial institution require them to have a contract with us that allows us the oversight and says that they’ll do this due diligence in return for us signing the best-interest contract. They’ll literally have to choose one FMO to do business with as a financial institution.
Many insurance-only agents right now have their appointments with several different FMOs. They might be with one FMO for one carrier and one FMO for another carrier. You have to choose one because you won’t be able to be with two financial institutions.
If you’re an upper-echelon agent, meaning that you’re writing more than $5 million to $8 million of annuity premium, and you’re used to getting tiered compensation or deferred comp from a carrier, those things essentially will go away.
I don’t believe that first-year compensation is going to drop much, if at all. From what we’re hearing from the carriers right now, they feel that what they’re paying is reasonable and customary.
An insurance-only agent isn’t used to an audit, meaning having someone come out to their office and look through their files. That’s going to be different because most likely we’re going to require an audit. Any financial institution is going to require either every year or every two years or every three years, much like a broker/dealer.
Trips and incentives, those are going to change. I believe that there will still be trips but I think they’ll look much more like a broker/dealer trip. They won’t be quite as lavish. They probably won’t be too exotic of destinations. They’ll probably be shorter, more training.