An insurance company executive at one of the top fixed indexed annuity sellers cast doubt on an insurance company’s ability to police and supervise independent agents selling financial products into retirement accounts.
S. Craig Lindner, co-CEO of American Financial Group in Cincinnati, said that unless an insurance company decides to take on the fiduciary obligation of the distribution, insurance companies do not necessarily assume fiduciary liability. Lindner made his comments in an earnings call on Tuesday. Great American Insurance Group is a subsidiary.
An analyst asked during the call about another company's interpretation of the Department of Labor's fiduciary rule.
“Another big seller of fixed indexed annuities that sells through independent distribution suggested the new DOL rule makes that company the financial institution that assumes fiduciary liability,” Jay Cohen, an analyst with Bank of America Merrill Lynch, commented during the call.
“How do you guys view this? And is this interpretation correct?” Cohen asked.
Other companies have said they are backing away from selling FIAs in the qualified market through independent agents because of the liability without the ability to supervise independents.
Lindner responded: “That interpretation is not correct unless the insurance company decided to be the financial institution and take on the fiduciary obligation of the distribution.”
The exchange underscores the uncertainty among some insurance executives about their respective insurance companies’ duties and responsibilities with regard to supervising the sale of annuities and other financial products by independent agents.
Under the Department of Labor’s new fiduciary rule, commission payments on the sales of FIAs into qualified accounts are forbidden unless those commissions are paid pursuant to one of two specified exemptions.
One of those exemptions, the more burdensome Best Interest Contract Exemption, requires that a financial institution sign a Best Interest Contract with the policyholder.
Regulated Companies Spelled Out
Under the DOL rule, organizations that qualify as a “financial institution” are banks, broker/dealers, registered investment advisors and insurance companies, all of them regulated in one form or another.
In a May 2 memo to producers, Ronald J. Grensteiner, president of American Equity Investment Life, wrote that regulated institutions must function as the financial institution for sales of FIAs by independent agents into qualified accounts.
Yet, in another exchange last week with Wall Street analysts, executives of Principal Financial Group, which sells retirement plans through distributors, said wholesalers working with independent advisors would be taking on fiduciary obligations under the DOL rule because the advisor would be working directly with consumers.
Independent third-party administrators “work with wire houses, and all of our alliance partners to distribute our product,” Principal Financial CEO Daniel J. Houston, said in response to an analyst’s question.
“We don't sell these plans on a direct basis," Houston said. "It's the advisor who would be acting in the capacity of the fiduciary."
Meanwhile, American Financial Group on Monday reported first-quarter net income of $101 million compared to $19 million in the year-ago period.
Earnings, adjusted for nonrecurring costs, came to $1.25 per share, beating the average of three Zacks Investment Research analysts’ estimates by 4 cents.
Last year’s first quarter results included an after-tax loss of $105 million related to the sale of its long-term care insurance business, the company said in a statement.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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