Financial advisors who avoid commission-based annuities could be drawn to selling more annuities as insurers repackage them into fee-based products to comply with fiduciary regulations. That's the word from the chief executive of Lincoln Financial Group, a major seller of variable annuities.
“With fee-based annuities currently representing a small portion of industry sales, we see this as a big distribution growth opportunity,” Dennis R. Glass, president and CEO of Lincoln Financial Group, said in a conference call with analysts.
Lincoln Financial was the No. 7 seller of annuities in the U.S. as of June 30, with sales of $4.6 billion in the first six months of the year. The bulk of those sales — $3.5 billion worth — was in variable annuities.
“We think there's a very significant population of financial advisors,” who, if offered the proper fee-based structures, would be more willing to participate, Glass said.
Fixed and variable annuity sales rose only 3 percent to $117.3 billion in the first six months of this year compared to the year-ago period. Attracting advisors by creating fee-based options would give the industry a welcome boost.
Variable annuities, which rely on commission-based sales models, have suffered recently. That's due in part to Department of Labor regulators preparing to implement higher investment thresholds on financial advisors.
Sales of variable annuities plunged 22 percent to $53.5 billion in the first half of the year compared to the year-ago period, data from LIMRA Secure Retirement Institute show.
But does the rest of the annuity distribution marketplace believe there is enough interest to swing out of commission-based models and into the fee-based world?
We’ll have to wait and see, Glass said.
With growing interest in fee-based products, Glass also said his company will be refreshing its annuity line-up in preparation for reintroduction early next year.
The company has filed documents for a “no-load and lower fee passive investment variable annuity with a simplified guaranteed income story,” he said.
Distributors Proceed With Commission-Based Sales
In the meantime, distributors are gearing up to move ahead with commission-based sales, which are still allowed under the DOL’s new regulatory regime.
Under the DOL’s new fiduciary rule, which is designed to minimize conflicted advice into retirement accounts, selling commission-based products will become more difficult for financial advisors and distributors, advisors say.
Advisors looking to continue with commission-based sales of variable annuities and fixed indexed annuities will do so under the Best Interest Contract Exemption (BICE). Fixed annuities will continue to be sold under the less onerous Prohibited Transaction Exemption 84-24 (PTE 84-24).
With five months to go before the DOL rule takes effect April 10, 207, distributors are working overtime to find ways to continue with commission-based sales.
“Of our 10 largest variable annuity partners, we believe nine will use the Best Interest Contract Exemption for commissions,” Glass said.
“Also of note, 85 percent to 90 percent of the sales from our top 25 variable annuity partners will also allow commissions,” he said.
In addition, 18 independent marketing organizations had, as of late October, filed paperwork with the DOL for “financial institution” status. This designation is considered vital if independent agents are going to continue selling commission-based fixed indexed annuities, one of the annuity industry’s best-selling products.
Retaining commission-based revenue models and developing fee-based models are in the best interest of clients so clients can choose how they want to pay advisors or brokers, Glass said.
Lincoln Beats 3Q Wall Street Estimates
If Glass and his executive team sounded upbeat about the future of annuity sales into the retirement market and their company’s role in it, perhaps it also had to do with Lincoln’s third-quarter earnings report released Wednesday.
The company reported third-quarter net income of $467 million, more than double the $227 million in the year-ago period. Revenue was $3.53 billion.
Lincoln Financial said it had net income of $2 per share. Earnings, adjusted for nonrecurring gains and pretax gains, were $1.83 per share, well above Wall Street expectations.
The average estimate of eight analysts surveyed by Zacks Investment Research was for earnings of $1.62 per share.
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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