Over 150.000 insurance professionals and consumers come to the Insurance Forum every month. Click here to register for FREE


Go Back   Insurance Forums > Insurance Agents and Brokers Forum > Annuities Forum

Reply to DOL Unintended Consequences?     
Old 06-10-2017, 09:45 AM   #11
Super Genius
 
Join Date: Sep 2016
Posts:124
State: Mike Siegal is an Insurance Agent from Undisclosed Location
DOL Unintended Consequences? Re: DOL Unintended Consequences? Mike Siegal is the thread starter for: DOL Unintended Consequences?

Originally Posted by DHK View Post
Immaterial. With annuities in particular, it's about my knowledge and a complete fact find to determine if the annuity is a good fit or not. Since my compensation is based on the annuity purchase and not a hard charge against the client, it wouldn't matter if it was 1% or 10% up front. Why? Because of doing a fact find and backing up my recommendations in writing.

Remember that the DOL is against selling only for commission % or contest prizes, etc. But they are all for a comprehensive job and documented recommendations.
Thanks DHK.

I take it you are NOT a RIA then....?

.
------------------------------------
  Reply With Quote to DOL Unintended Consequences?

Old 06-10-2017, 09:52 AM   #12
DHK
Guru
DHK on DOL Unintended Consequences?
 
Join Date: Nov 2007
Posts:5,928
State: DHK is an Insurance Agent from California
DHK is a member of 5000 posts Super VIP club
DOL Unintended Consequences? Re: DOL Unintended Consequences?
Originally Posted by Mike Siegal View Post
Thanks DHK.

I take it you are NOT a RIA then....?

.
I am not, but I'm also not sure what that would have to do with anything.

Even if I was an RIA (or more specifically an IAR for either my own RIA or someone else's RIA), all that would be required would be to disclose that there may be a conflict of interest due to insurance up front compensation being in favor of the annuity, and disclose insurance sales as an outside business activity.

However, in reality, the AUM model has the greater earning potential as AUM fees may be as high as 2-3% each year for as long as you have the account. The advisor may get up to 1/2 of that 2-3%... so I would suggest that the IAR with an RIA would have the greater "conflict of interest" along with potential market risks.

Earning and Validating Financial Planning And/or AUM Fees

https://www.kitces.com/blog/the-4-di...r-fiduciaries/
------------------------------------
  Reply With Quote to DOL Unintended Consequences?
Old 06-10-2017, 04:49 PM   #13
Super Genius
 
Join Date: Sep 2016
Posts:124
State: Mike Siegal is an Insurance Agent from Undisclosed Location
DOL Unintended Consequences? Re: DOL Unintended Consequences? Mike Siegal is the thread starter for: DOL Unintended Consequences?

Originally Posted by DHK View Post
I am not, but I'm also not sure what that would have to do with anything.

Even if I was an RIA (or more specifically an IAR for either my own RIA or someone else's RIA), all that would be required would be to disclose that there may be a conflict of interest due to insurance up front compensation being in favor of the annuity, and disclose insurance sales as an outside business activity.

However, in reality, the AUM model has the greater earning potential as AUM fees may be as high as 2-3% each year for as long as you have the account. The advisor may get up to 1/2 of that 2-3%... so I would suggest that the IAR with an RIA would have the greater "conflict of interest" along with potential market risks.

Earning and Validating Financial Planning And/or AUM Fees

https://www.kitces.com/blog/the-4-di...r-fiduciaries/
Thanks DHK...

I'm not getting it all...BUT it sounds like you are a license in LH and not security licensed in anyway, so...there's no conflict of interest? AND you probably don't give advice as a fiduciary....AM I RIGHT?
------------------------------------
  Reply With Quote to DOL Unintended Consequences?
Old 06-10-2017, 05:17 PM   #14
DHK
Guru
DHK on DOL Unintended Consequences?
 
Join Date: Nov 2007
Posts:5,928
State: DHK is an Insurance Agent from California
DHK is a member of 5000 posts Super VIP club
DOL Unintended Consequences? Re: DOL Unintended Consequences?
We need to define a 'conflict of interest'. EVERY business model has 'conflicts of interest' for the mere FACT that we are compensated for either selling products or giving advice.

The AUM model of RIAs would convince you that they are the "fiduciary gods" because "their interests are more closely aligned with their clients than anybody else".

Baloney.

Can an AUM investment model help with longevity risk? No. Only annuities do that.

Do AUM investment models protect principal from market risk? No. They may have risk-adjusted models, but you cannot GUARANTEE the principal.


I can give advice in any way I want - aside from making recommendations about securities (buying, selling, holding, or any analysis), legal, or tax advice. I provide written plans and document my strategies in such a way that people can understand them.

Am I a fiduciary? I'm not sure I can say that. I can say that I am a professional and I don't just "sell product to sell products".

BTW, to be a true fiduciary requires legal agreements including a letter of engagement, the scope of the engagements, what is covered and what isn't... and a significant fee to be paid. Now, I know there is at least one poster on here that does exactly that. He holds himself out as a fiduciary insurance agent and has the analyst insurance license and legal agreements to back it up.

If I'm selling an annuity under BICE, then I must be a fiduciary in order to determine the nature of where their account is now - including risk, return, and cost... and compare it to what I would recommend and if the client understands and wants my recommendation.

I may not be a 'fiduciary', but I am a professional in every sense of the word. Plus, I uphold The American College code of ethics as I am a ChFC designation holder.

https://www.theamericancollege.edu/a...code-of-ethics

For now though, I'm taking a break regarding annuities until the 'dust settles' on all this. I want to see how most companies react to everything, how paperwork is adjusted, etc.

----------

Btw, I don't see myself ever getting securities licensed again. All this "ongoing advice for a fee"... is another way of saying that you get paid to babysit, monitor, and parent your clients into not making mistakes. Coincidentally, that's how FINRA treats their registered reps - they babysit, monitor, and 'parent' them.

I can help people to avoid mistakes without requiring securities licensing.
------------------------------------
  Reply With Quote to DOL Unintended Consequences?
Old 06-10-2017, 08:12 PM   #15
Guru
 
Join Date: Sep 2012
Posts:2,269
State: Tahoe Ray is an Insurance Agent from Nevada
Tahoe Ray is a member of 1000 posts VIP club
DOL Unintended Consequences?
Originally Posted by DHK View Post

Am I a fiduciary? I'm not sure I can say that. I can say that I am a professional and I don't just "sell product to sell products".

BTW, to be a true fiduciary requires legal agreements including a letter of engagement, the scope of the engagements, what is covered and what isn't... and a significant fee to be paid. Now, I know there is at least one poster on here that does exactly that. He holds himself out as a fiduciary insurance agent and has the analyst insurance license and legal agreements to back it up.

If I'm selling an annuity under BICE, then I must be a fiduciary in order to determine the nature of where their account is now - including risk, return, and cost... and compare it to what I would recommend and if the client understands and wants my recommendation.
Your answer to this is a plain and simple yes when it comes to IRAs.

If I sent you some of the BGA selling agreement addendums that we are starting to get you would fall over.

The entire upline (except for the carriers, of course) are being considered fiduciaries.

If a client sues an agent under these new regs, an attorney will absolutely name everyone in the food chain.

I couldn't imagine taking on a broker that I haven't met/talked to/know under these regs.

It is absolutely crazy and "taking a break until the dust settles" is a solid idea.

Edit: I know that for most agents what I described isn't a concern. However, know that if we're dealing with these changes, your liability is likely to be much higher...
------------------------------------

Last edited by Tahoe Ray; 06-10-2017 at 08:17 PM.
  Reply With Quote to DOL Unintended Consequences?
Old 06-11-2017, 02:56 PM   #16
Guru
 
Join Date: Oct 2009
Posts:6,393
State: scagnt83 is an Insurance Agent from South Carolina
scagnt83 is a member of 5000 posts Super VIP club
DOL Unintended Consequences? Re: DOL Unintended Consequences?
Unintended consequences have already been covered for months now on this forum. In short, a lot fewer options for people who do not have $1mm in IRA assets to put with a single advisor.

-----------

FIAs will not be forced into a 1% trail as some have mentioned. Not unless Mutual Funds do too... which we all know wont happen anytime in the next decade. It will certainly be a more common option to choose from though (it already is).

Id say over half of FIAs out there already offer trail options. That is a trend that started even before the DOL Regs hit.

FIA comp will just be more in line with Mutual Fund comp. And you will see shorter surrender periods. Both are good things for clients and the industry imo.

----------

Originally Posted by VolAgent View Post
From what I saw previously, once you put an income rider, of any kind, on an annuity, the client was basically locked in for life. It was unlikely the account value would ever exceed the income rider base. Whether indexed or variable. So, a smart person would gladly forgo an up front commission for 1% for life on the annuity. If you can really get 1% a year off account value, this is a gold mine for smart agents.
Not necessarily a gold mine. You are correct that selling an Income Rider is essentially a lifetime contract. But there is an issue there with taking a flat 1%.

The issue is that the Rider Value is much higher than the Account Value... that means the income being paid out, will be a significant % of Account Value... like in the 10% range on average if I had to guess.

That means your Account Value will be cut in half within 5-10 years of taking income.

Its not like having true AUM with just 4% a year coming out and it takes 30 years for the account to dwindle down.

Of course, if most of your clients are 10-15 years away from taking income, it makes a lot more sense. But with anything under 10 years, I think an argument could be made to take Opt 1.

Plus you have to account for the "time value" of the money. It takes you 5-6 years to break even vs. heaped comp.... then after 10 -15 years you might have double or more.... finally... depending on when they start taking income.
------------------------------------

Last edited by scagnt83; 06-11-2017 at 09:23 PM.
  Reply With Quote to DOL Unintended Consequences?
Old 06-12-2017, 10:01 AM   #17
Guru
VolAgent on DOL Unintended Consequences?
 
Join Date: May 2009
Posts:12,987
State: VolAgent is an Insurance Agent from Tennessee
VolAgent is a member of 5000 posts Super VIP club
DOL Unintended Consequences? Re: DOL Unintended Consequences?
Originally Posted by scagnt83 View Post


Not necessarily a gold mine. You are correct that selling an Income Rider is essentially a lifetime contract. But there is an issue there with taking a flat 1%.

The issue is that the Rider Value is much higher than the Account Value... that means the income being paid out, will be a significant % of Account Value... like in the 10% range on average if I had to guess.

That means your Account Value will be cut in half within 5-10 years of taking income.

Its not like having true AUM with just 4% a year coming out and it takes 30 years for the account to dwindle down.

Of course, if most of your clients are 10-15 years away from taking income, it makes a lot more sense. But with anything under 10 years, I think an argument could be made to take Opt 1.

Plus you have to account for the "time value" of the money. It takes you 5-6 years to break even vs. heaped comp.... then after 10 -15 years you might have double or more.... finally... depending on when they start taking income.
All fair points, but I hope you recognize mine.

Sure, you would need to sit down and decide what you wanted to do on each case, assuming you wanted to maximize your commission and it did not affect the client. However, if you are putting someone into an indexed annuity with several years to distribution, that could be a powerful income stream.

Obviously I am just putting it out there as it occurred to me, without trying to work through all the scenarios. Since I don't actively sell annuities, it is more a thought exercise than my plan for the future.

------------------------------------
You can pay the premium or you can own the loss.
  Reply With Quote to DOL Unintended Consequences?
Old 06-16-2017, 04:25 PM   #18
Guru
 
Join Date: Sep 2012
Posts:2,269
State: Tahoe Ray is an Insurance Agent from Nevada
Tahoe Ray is a member of 1000 posts VIP club
DOL Unintended Consequences? Re: DOL Unintended Consequences?
http://www.investmentnews.com/articl...uty-on-brokers
------------------------------------
  Reply With Quote to DOL Unintended Consequences?
Old 06-16-2017, 05:08 PM   #19
DHK
Guru
DHK on DOL Unintended Consequences?
 
Join Date: Nov 2007
Posts:5,928
State: DHK is an Insurance Agent from California
DHK is a member of 5000 posts Super VIP club
DOL Unintended Consequences? Re: DOL Unintended Consequences?
In a 2012 study in the Journal of Financial Planning, Michael Finke, professor of personal financial planning at Texas Tech University, said four states impose fiduciary duty on brokers California, Missouri, South Carolina and South Dakota while 14 do not. He put the remaining 32 states, including Nevada, in a "quasi-fiduciary" category.
I have no problem being held to a fiduciary standard. I have a problem with the actual DOL bill requiring a financial institution to also share that standard for independent agents which is shaking everything up in the annuity world. It's also more about how firms are (over)reacting far beyond what the ruling requires in order to avoid legal complaints.
------------------------------------
  Reply With Quote to DOL Unintended Consequences?
Old 06-16-2017, 05:54 PM   #20
Guru
 
Join Date: Dec 2013
Posts:308
State: nylife11023 is an Insurance Agent from Undisclosed Location
DOL Unintended Consequences? Re: DOL Unintended Consequences?
Many customers will be 'taken advantage of' (I could have used different wording!) by the new rule. Take the 75 year old widow who has $800,000 in an IRA account. She has solid mutual funds and maybe a few stocks and bonds. She never (or hardly ever) trades. She will probably be put into a managed account costing 1% per year since the commission model is being taken away from her. That is $8,000.

What value is she getting for her $8K?
------------------------------------
  Reply With Quote to DOL Unintended Consequences?
Reply to DOL Unintended Consequences? 

  Insurance Agent Forum > Insurance Forums > Insurance Agents and Brokers Forum > Annuities Forum




Similar Threads with DOL Unintended Consequences?
Thread Thread Starter Forum Replies Last Post
DOL Unintended Consequences Mike Siegal Annuities Forum 0 06-07-2017 07:33 AM
DOL Fiduciary Update - 60 Day Delay Proposed by DOL scagnt83 Annuities Forum 12 05-23-2017 09:56 AM
Final DOL Fiduciary Regulations scagnt83 Annuities Forum 63 04-25-2016 09:46 PM
Obamacare= Unintended Consequences Justin Bilyj Health Care Reform Forum 0 09-26-2013 06:13 AM
Unintended Consequences Re: Retro Terminations Ann H Health Care Reform Forum 10 03-17-2011 02:50 PM



All times are GMT -5. The time now is 04:48 AM.

Forum enabled with vBulletin®
Copyright ©2000 - 2017, vBulletin Solutions, Inc.


Join the Forum - It's FREE

Share This Page



Weekly Poll

Where do we go from here? POLL
Nothing - No ACA fixes - status quo
29.82 %
HHS Rulings and band aid bills
17.54 %
Hail Mary repeal and/or replace bill
17.54 %
A bipartisan bill to fix ACA
35.09 %

Voters: 57. This poll is closed