Breakdown of IMO Vs. Insurance Company Channel

[nickzimmer]

Hi Everyone! I recognize that RIAs and bank-owned RIAs establish annuity contracts with intermediaries like IMOs as well as insurance companies. I was wondering if anyone happened to know the breakdown as to whether RIAs/bank-owned RIAs are more likely to work with an IMO or life insurance company. What would make an RIA for example choose to work with an IMO instead of directly with a life insurance company (e.g. volume of annuities sold)? Thanks in advance for your help!

 

[tjbh]

Interesting question. Are you looking to start your own RIA?

 

[ktmorgan]

You appear a bit muddled here.

1) Most RIA's don't deal in Annuities first of all.

2) Registered "Investment" Adviser = RIA

3) An Annuity is a competitor "Investment" to the investments the vast majority of RIA's use.

4) If a Bank happens to have it's own RIA then it likely has it's own Insurance subsidiary that it uses for their Annuity products usually to exclusivity.

5) Neither Banks, nor RIA's use IMO's.

Hi Everyone! I recognize that RIAs and bank-owned RIAs establish annuity contracts with intermediaries like IMOs as well as insurance companies. I was wondering if anyone happened to know the breakdown as to whether RIAs/bank-owned RIAs are more likely to work with an IMO or life insurance company. What would make an RIA for example choose to work with an IMO instead of directly with a life insurance company (e.g. volume of annuities sold)? Thanks in advance for your help!

 

[tjbh]

I would disagree with you. You're right that an annuity isn't an investment. However, IARs in an RIA will use annuities. They will use them as a bond alt, or in a client's retirement plan when it comes to generate income and balancing cash flows. A lot of times, some of the best fee-based annuities are only available through IDC or IMO channels, so they will use an IMO to get access to a specific product. Futhermore, a lot of IARs, if the are doing a hollistic plan for their client, will cover insurance bases like LTC and Medicare.

 

[ktmorgan]

1) You can disagree all you like. But the OP wasn't talking about IAR's. You brought them into the discussion.

2) Of course "Advisors" who 'also' hold an Insurance License with the state might use FIAnnuities as a Bond Alts

3) But "Advisers" who are registered with SEC and are governed under the '40 Act do not use FIAnnuities. They would use some point on, some portion of, or all of the Term Structure for their exposure then simply adjust their duration and manage their convexity with Gamma.

4) Lesson: You see, the problem with popping on to a chat board to show everyone how smart you are is that you never know who it is on the other side that you might be attempting to correct.

I would disagree with you. You're right that an annuity isn't an investment. However, IARs in an RIA will use annuities. They will use them as a bond alt, or in a client's retirement plan when it comes to generate income and balancing cash flows. A lot of times, some of the best fee-based annuities are only available through IDC or IMO channels, so they will use an IMO to get access to a specific product. Futhermore, a lot of IARs, if the are doing a hollistic plan for their client, will cover insurance bases like LTC and Medicare.

 

[DHK]

Ktmorgan,

I'm having a hard time following you in your post. tjbh would seem to be 'on point'.

1) IARs are investment advisor representatives of an RIA - registered investment advisory firm. They are investment advisors, and as long as they hold the appropriate insurance licensing and disclose it on their ADV Part 2, they can also sell fixed annuities - including fixed indexed and EVEN fee-based variable annuities.

2) To use FIAs as a "bond alternative" is rather stupid, in my opinion. If I had a Series 65, I would gather their assets and then diversify a portion into annuities for lifetime or joint-lifetime income and invest the rest. (That's the "buy income and invest the difference" method of retirement income planning.)

3) I'm not following you on this point, unless you're talking about the RIA "managing" annuities... because they wouldn't. They would allow their IARs to sell annuities as long as they disclose it as an OBA (outside business activity).

 

[ktmorgan]

You guys are missing the point of the what OP asked.

Among other things the OP asked about RIA’s. Registered Investment Adviser with an "e." The Fund, The Registered Entity, and what it does or does not do with Banks, IMO's, Annuities and Insurance Carriers.

Then thjh introduced another term, "IAR" out of the blue that has a completely different meaning and context, referring to what an IAR, (Advisor, with an "o", the Person, the Rep) may possibly do.

The content of what he actually wrote was like "yeah duh, no ****," Yes, IAR's can use Annuities through these wacky things called IMO's and sometimes they even use them for this amazing thing called Financial Planning "you don't say?"

What an Adviser, the FUND, the ENTITY, does or doesn't do has a completely and wholly different meaning in fact and in practice than what its Representative (IAR) with an Insurance license may or may not do.

No idea why this appears confusing, except to say that many people even in their own Industry don't know the difference between Investment Adviser and Financial Advisor. One has distinct meaning in the Law as defined by the “Investment Advisers Act of 1940,” and the other does not.

Better grab that American College Cert off the wall and mail it back to them for a refund. j/k You gotta be overthinking this. It ain’t that hard.

Point 3) No way I can explain all of this in proper terms without destroying the meaning...and the joke. Way beyond the scope of an Insurance Board.

You know what the Term Structure is right? You know how Duration Risk can affect Yield Curve Spreads right? And you know how a RIA, the Adviser, the Fund, would immunize that delta in the MacCaulay Duration with Gamma Hedging is right? I know you do. This is in all CFP/ChFC Investments Text. But I did manage a Derivatives Desk for 12 years too, so this stuff is all second nature to me.

Basically saying that the Adviser, The Fund, would use actual Bonds themselves as the Fixed Income Alternative. (joke) Maybe jokes like that aren’t fair for Insurance Agents. :nah

Ktmorgan,

I'm having a hard time following you in your post. tjbh would seem to be 'on point'.

1) IARs are investment advisor representatives of an RIA - registered investment advisory firm. They are investment advisors, and as long as they hold the appropriate insurance licensing and disclose it on their ADV Part 2, they can also sell fixed annuities - including fixed indexed and EVEN fee-based variable annuities.

2) To use FIAs as a "bond alternative" is rather stupid, in my opinion. If I had a Series 65, I would gather their assets and then diversify a portion into annuities for lifetime or joint-lifetime income and invest the rest. (That's the "buy income and invest the difference" method of retirement income planning.)

3) I'm not following you on this point, unless you're talking about the RIA "managing" annuities... because they wouldn't. They would allow their IARs to sell annuities as long as they disclose it as an OBA (outside business activity).

 

[DHK]

https://www.kitces.com/blog/financial-adviser-vs-advisor-vs-financial-planner-whats-the-difference/

Ironically, the difference between Investment Adviser (firm) and Financial Advisor (rep/planner/consultant) is brought to you by the letters "e & o".


I will admit that you're referring to probably a larger RIA that does its own portfolio management in-house, rather than a sole-proprietor RIA that primarily uses 3rd party asset management.


However, considering the OP's other threads, I think you're nit-picking between IARs and RIAs.

http://www.insurance-forums.net/forum/annuities-forum/process-buying-annuities-t89774.html

http://www.insurance-forums.net/forum/annuities-forum/fixed-annuity-sales-channel-t89773.html

http://www.insurance-forums.net/forum/annuities-forum/process-buying-annuities-t89772.html

 

[scagnt83]

Let me clear a few things up here.

1.
It is a fallacy that "anyone can call themselves a Financial Adviser". In most states that term is regulated.

States have their own laws about what is and isnt a "Financial Adviser". Usually similar terms such as "Financial Planner" "Financial Advisor" are included in the same regs.

In many states, SC included, you better have a Series 65/66 to market yourself as a "Financial Adviser". If not, you are risking your career and a whole bunch of fines.

The exception is if you have a qualifying designation, usually CFP/CFHC/CFA are included. But thats even more state specific. And most states still require them to register with the state as a IAR even with the designation (you just dont have to have a 65/66).


2.
IARs most definitely use FIAs. They also use VAs and FAs.

There are Zero Comp FIAs out there now (Great American) that are placed under the RIA as part of their AUM to include in the Wrap Fee.

This is the same as the RIA approved VAs from Jackson/Jefferson/Pru/etc.

They can also run Insurance Business separate from their RIA business. Even take full commissions on it. Of course, it has to be documented and disclosed to the client. But it can be part of the overall recommendation and financial plan they create as an IAR.


IARs can and do utilize FIAs. I personally know a good many who do. Used to work with a bunch of them. Most use VAs more than FIAs. But many out there use both.


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And RIAs/IARs most certainly use IMOs to place their annuity business. They have to unless its a direct carrier.

Whats different is some RIAs have an "approved" IMO that their IARs must use. But some dont and those IARs are free to use who they wish.

Of course if its a no comp FIA and part of AUM, then it would have to be approved by the RIA and the RIA would have a selling agreement with a specific IMO.

Some of the really big RIAs (like LPL) have their own IMOs that they own & operate. So it all kind of depends. But an IMO/FMO must be used at some level above the agent, assuming its not a direct carrier.


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2) To use FIAs as a "bond alternative" is rather stupid, in my opinion. If I had a Series 65, I would gather their assets and then diversify a portion into annuities for lifetime or joint-lifetime income and invest the rest. (That's the "buy income and invest the difference" method of retirement income planning.)

Then there are plenty of stupid IARs out there. I know guys who use FIAs as a Treasury alternative all the time. Even an alternative to AAAs.

The risk is between a TBond and AAAs. Its return is higher than a TBond and often the AAAs too. Then there are the other benefits not provided by Bonds.


I know an IMO that makes their living from providing FIAs and FAs to Financial Advisers and Stock Brokers. Their main pitch is using it as a Bond alternative.


You can count me in as one of the stupid ones too. Because Ive sold many as Bond alternatives. If liquidity is not an issue, its a no-brainer for the client.

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[DHK]

Let me clear a few things up here.

1.
It is a fallacy that "anyone can call themselves a Financial Adviser". In most states that term is regulated.

States have their own laws about what is and isnt a "Financial Adviser". Usually similar terms such as "Financial Planner" "Financial Advisor" are included in the same regs.

In many states, SC included, you better have a Series 65/66 to market yourself as a "Financial Adviser". If not, you are risking your career and a whole bunch of fines.

The exception is if you have a qualifying designation, usually CFP/CFHC/CFA are included. But thats even more state specific. And most states still require them to register with the state as a IAR even with the designation (you just dont have to have a 65/66).

I don't think it's "most states". Last I heard, I think it's about 3: SC, TN, and perhaps NC or AR? I don't recall precisely which three it is, and that number may have grown... but I haven't read or heard anything about that recently.

The Series 65 exempt designations (generally CFP, ChFC, CFA, CPA/PFS, and CIC - and sometimes CLU) still would require registration if you plan to be an IAR for an RIA. This only means that you can skip the Series 65 exam. If you're not going to be charging planning fees for investment advice regarding securities, or managing securities for fees... you don't need to be registered.

I know that in California, we have our issues with "Senior Advisors", so a lot of our regulations are about that.

Quite frankly, a financial advisor should be more about what one DOES, rather than what one SELLS. But perhaps that's just me. I've seen college student admission people being called "financial advisors", and I doubt anyone is going after them.

But if you want to create financial plans for a fee or give other advice, without giving advice on securities... you can do it without any kind of registration or licensing.