What products are generating the most interest (and sales) from your producers?
Rich Hellerich:
With the strong market performance recently, we are seeing increased interest in our FIA products focused on accumulation. Producers have presented clients with the concept of locking in a portion of their current market gains utilizing a fixed indexed annuity. If the market continues to climb, they still enjoy market-linked index credits to their principal; if the market falls they have protected their gains made over the past several years. These FIAs offer strong accumulation potential with robust caps and participation rates.
Ron Lane:
Clients are looking for guarantees when purchasing annuity products. Our producers tend to have an older clientele and are selling Multi-Year Guaranteed Annuities. Even in this low interest rate environment, conservative investors are happier with annuity returns compared to bank CDs.
When it comes to indexed annuities, most of our producers are interested in upfront bonus products that make up for lower cap rates. When we analyzed our index producers, many have recently (last six months) switched to uncapped products due to the continued gains in the equity markets. Uncapped products offer better upside potential for gains and still protect the clients from market volatility.
How concerned are you, and your producers, about the DOL Fiduciary Rule, and what steps are you taking to deal with it?
Rich Hellerich:
Like many others in our industry, we are concerned with the turmoil and expense this partisan regulation has brought on all of us; agents, marketing organizations and wholesale distribution, carriers and ultimately consumers. I believe that producers have been subjected to fear-mongering from some organizations using the proposed rule to proselytize relationships and garner contracts.
Specifically answering your question, we are ready if the rule is implemented full force. We have taken action to assist our producers whether they are insurance-only, RIA/IAR, or Registered Representative. We have full access to Financial Institution status if needed, reinforced our relationships with existing securities platform relationships, and expanded our ability to serve producers that want to explore their options by becoming securities licensed. We have the producer covered, regardless of his or her sales platform.
We continue daily to follow the many articles and pontification regarding the Rule’s final form, implementation date, and total cost our organization will pay to comply. At present, I don’t believe anyone knows how this is going to finally play out. My guess is that PTE 84-24, or something similar, is here to stay.
Ron Lane:
Overall, our producers seem to have excellent relationships with their clients so disclosing additional information to them doesn’t make our agents uncomfortable. Our agents are mainly concerned with being compliant and making sure they can obtain the correct documentation for their carriers and personal files. Fairlane is making sure our representatives are versed on the DOL requirements when writing qualified business. Our marketing staff maintains DOL materials as well as home office guidelines to help producers stay in compliance.
As of this writing, the supporters of the Labor Department’s Fiduciary Rule are lamenting the newly proposed 18-month implementation delay, while opponents are saying the postponement is needed to give the agency time to review the rule. We’ll stay tuned for our producers.
Living benefit riders continue to appeal to producers and clients. What has been your experience with these and other lifetime benefit options?
Rich Hellerich:
Interest in this aspect of FIA contract options continues to escalate. While the vast majority of our FAI sales are focused on accumulation or guaranteed lifetime income solutions, we have a growing number of agents that are helping their clients face the prospect of a chronic care issue by putting part of their total premium into a FIA contract specifically for chronic care issues. These clients were adverse to uncertainy regarding long term care insurance options and liked the idea that if they didn’t need the coverage, the policy was now an additional backstop to their possible retirement income needs and financial security.
In addition, concerns regarding the financial status of government programs such as Medicare will generate more interest in these riders. I believe we will witness tremendous growth in the sales of chronic care riders considering the continuing flood of retiring Baby Boomers as we move forward. Where else can consumers take advantage of a financial product and know exactly what their guaranteed benefit is with the opportunity for even better performance depending on the indexed returns? These new riders enhance an already compelling benefit presentation for today’s fixed indexed annuity producers!
Ron Lane:
Living benefit riders, particularly income riders, give our producers another chance to offer their clients the guarantees they are looking for. Offering a guaranteed income for life regardless of stock market performance and interest rate environment is a huge value-add to anyone’s retirement portfolio. This concept is a valuable supplement to social security and other investments that may not be as secure. Other living benefits, including nursing home waivers and terminal illness riders, are very valuable because they give clients peace of mind by having access to their money (and potentially an additional benefit) in the event of an unfortunate medical situation. Many riders carry no additional costs and add yet another arrow to the agent’s quiver. Consumers respond positively to the added benefits and many carriers have implemented these benefits at issue.
From interest rates to product appeal and innovation, what is your forecast for the annuity business through 2018?
Rich Hellerich:
Innovation may well take a backseat to regulation. Thanks to the uncertainty created by the ambiguities and interpretation of the DOL Fiduciary Rule, and despite news at press time that the DOL itself has requested an extended delay in implementation, I believe any forecast must consider the possibility of further carrier announcements regarding compensation and product design.
Carriers, anticipating a January 1, 2018, effective date have been retooling product portfolios and are well down the road anticipating they would have to be ready by the end of this year. Millions of dollars and countless hours have been spent not only by the carriers, but additionally fixed annuity distribution channels on new CRM and financial analysis software, procedures, and systems to assist producers in this new era of government regulation. The question is, will carriers go ahead with these revamped or new products and adjusted commission structures, or maintain current designs not wanting to be the “first on the beach?” With the investment already made or committed, will AMOs go ahead with at least partial implementation of the strategies they have put in place? It will be interesting to watch this play out over the next 18 months.
In this era of continually suppressed interest rates, we have seen very positive producer and consumer reaction to fixed guaranteed rates north of 3.00 percent. FIA sales continue to be strong in our office despite the continued bull market.
The bottom line for producers, distribution channels and carriers is we have our own “bull market” in thousands of consumers nearing retirement that want the security of knowing they have created a retirement strategy that addresses guaranteed income, protection from possible chronic care issues, and protection from market downturns. For those agents paying attention to the regulatory, political and economic factors shaping our industry, and how they interact with their clients and prospects, my forecast is partly cloudy with a slight chance of rain, becoming sunny by year end.
Ron Lane:
As we continue to push through this low interest rate environment, clients will still turn to annuity products for safety and peace of mind. They will ask for guarantees and conservative returns without being concerned about stock market volatility. Products with bonuses and riders guaranteed by insurance companies and fixed annuities with fair rates and living benefit options will prevail in 2018.
We’re confident that interest rates will rise in 2018 or before year’s end. Our economy has been growing and the equity markets are more than stable. With higher rates, the markets could rebalance, forcing consumers to take some profits. Fixed annuities will be more attractive as a warehouse for qualified monies. If the DOL does postpone any changes until July 2019, the next two years should set sales records for the industry.
Richard (Rich) Hellerich is the president of Great Plains Annuity & Life Marketing, Inc. He can be reached at Great Plains Annuity & Life Marketing, Inc., 10901 W. 84th Terrace, Suite 125, Lenexa, KS 66214. Telephone: 800-710-1115 Email: [email protected]. Website: www.greatplainsannuity.com.
Ronald J. Lane, Sr., is president of Fairlane Financial Corp. He can be reached at Fairlane Financial Corp., 1200 South Pine Island Road, Suite 100, Fort Lauderdale, FL 33324. Telephone: 800-327-1460. Email: [email protected].
