The last few years have seen dramatic regulatory change in the life/health industry. From financial planners to health agents to annuity producers, everyone has felt the effects of regulatory restraint on both the local and national level. What changes are yet to come? And how can you adapt in order to survive and thrive in this ever fluctuating environment?
At the 2014 Advisor Summit Network in Las Vegas, an expert panel comprised of Sheryl Moore, President and Chief Executive Officer, Moore Market Intelligence, Scott Kipper, Insurance Commissioner, State of Nevada, and Kim O’Brien, President and Chief Executive Officer, National Association for Fixed Annuities (NAFA), and moderated by Steven R. McCarty, Chairman, National Ethics Association, discussed many facets of regulation. Here are excerpts from their discussion.
Q: What has had the biggest impact on this industry?
Moore: From the producers’ perspective, I think the biggest change we’ve had in this industry is suitability. That’s really affected your businesses in a big way. It has affected not only the products that are in your toolbox, but the solutions that you can provide to your clients, as well.
O’Brien: Producers have done an astounding with suitability. NAFA just got our numbers in on 2013 and there were 46 complaints against the indexed annuity and a total of 202 for all fixed annuities. That’s down 85 percent. We wouldn’t have gotten the Harkin Amendment if we didn’t have the suitability rule in place.
Kipper: Suitability is also the [commissioners’] focus. We’re entirely hopeful that this trend continues. It’s nice to hear those numbers. We believe the message is getting across. Here in Nevada, we don’t have those significant issues and we hope this continues to be a trend that you all are doing what you’re supposed to do for your consumers — getting the right products in their hands at the right time.
Q: How has this issue of suitability impacted advisors and their businesses?
O’Brien: Well, it’s no doubt complicated it. There’s a lot to do to meet suitability standards, there’s a lot of forms to complete. There’s no doubt it’s increased the workload. But I think with that increased workload, it’s further secured the relationship with your customers and carriers.
Moore: I think it’s been confusing, too. You can sell insurance and annuities for 80 different companies if you feel like it, but each of those 80 companies might have different suitability forms and guidelines and processes. What I’m hearing from advisors is that suitability’s a pain in the butt. And I get that. And I don’t disagree with you. I’m not entirely happy with all the effects that it’s had on our industry, but I was having a conversation with Mr. Kipper out in the hallway and I really think that what I hear from all of you more than anything else is, “Yeah, it’s a pain in my neck, but it has helped me in this way.”Has anybody heard the name Glenn Neasham? That case happened before we had our suitability model reg that’s in place today. And maybe, had that been in effect at that time, we wouldn’t have had to hear about Glenn Neasham all over the headlines for so many months.I think that the takeaway when it comes to suitability is, yes it is more work; yes it is confusing. But in the end, it not only helps protect you, but it also strengthens your relationships with your clients. So ultimately, I do see it as a win/win.
Kipper: As a very old producer, I think that suitability did nothing but simply help cement that relationship between producer, advisor and client. And I think that will go a long way toward enhancing sales, enhancing a change in the portfolio of those clients as their situation changes, because you can know them that much better.Ninety-five percent of the producers and advisors out there do it right, do it correctly, are not a problem, are a great service to their clients. It’s the 5 percent that end up on my desk and force us to take action at the state level and also to address new suitability rules at the NAIC.
O’Brien: If I might just take this a little more federal, NAFA is very much opposed to the DOL fiduciary rule and the SEC putting forth a “uniform standard,” because we believe the suitability is the gold standard for the transactional sales that you make. The reason we’re so opposed to the fiduciary standard is not because it’s not a great standard—it’s a good standard for the type of business that it’s applicable to. But if there’s a uniform standard imposed, suitability will not go away. Thirty-six states now have enacted it and Harkin makes it pretty much across the country. So you will have to face two dueling standards, two fiduciary responsibilities, both the suitability standard and the best interest standard of the fiduciary. That is going to be devastating to the marketplace.
Q: As far as the product line itself, what changes do you see coming down the pike?
O’Brien: It’s the proprietary indices and some of the exotic indices that are going to be our new challenge in the industry.
Moore: Agreed, Kim. And in the conversations I’m having with regulators, one of the big concerns I’m hearing about is uncapped crediting methods. What they’re seeing is that there may be a disconnect between that concept and what’s being communicated to the client. And that’s a concern. I just want to caution all of you that if you are selling uncapped index annuities and these products with these proprietary or hybrid indices, please understand your product and make sure you are communicating this very well to your clients so there’s a realistic expectation of what they can receive. It’s the guarantees on these products that the prospects and the consumers want. They don’t want to hear that this product has stock market-like potential, they want the safety, and they want the guarantees. So we need to return to that message rather than getting excited by these exotic indices.
Kipper: One of the things we do here in Nevada that I would love to see other states do is we have an advisory committee made up of industry reps, brokers, advisors as well as some consumers and we sit down quarterly and talk about issues. The other thing is if you see something out there in the street that looks a little fishy, or is something that you know is illegal or you think is illegal, we ask producers and advisors to contact us and turns us onto those concerns, to those products, so we can investigate and vet them more fully.What we see occasionally that gets advisor in trouble with us is they go beyond what you were just talking about and fill in and color it more than they need to and some of that coloring isn’t quite right. And then those complaints land on my wall. I think if there is a takeaway, it’s education; know your products; know how they function and tie that with the suitability piece after you’ve sat down and debriefed your clients.
Q: How can advisors prepare themselves for future changes? And if they’re with an FMO, how can they talk to their producers about how to adapt?
O’Brien: Engage. There is currently a proposed tax reform proposal draft by Congressman Camp that’s imposing almost $28 billion of taxes to pay for reform. Now, it’s a draft bill, but this $28 billion of taxes on the insurance industry, and it’s only life insurance companies, is going to absolutely devastate our marketplace. It’s going to impact the product; it’s going to impact how the product can perform, the interest rates that can be deemed. So get involved. Engage. Meet with your congressperson. Please do, because they will listen to you. You’re a vote and you can tell them what impact this will have on your business and your customers.
Moore: We also need to be focusing on education. I’ve really been disappointed in our industry as a whole since we defeated 151A with the Harkin Amendment. It seemed like everybody was like, “Oh, that sucked, but it’s over. OK, back to what we were doing.” But we need to learn a lesson here. Maybe it’s not the same exact issue we were dealing with on 151A, but we need to be more of a self-policing industry, because I don’t know about you guys, but I think these products are freaking awesome. I own indexed annuities, I own indexed life insurance. I believe in these products and I think that if we want to be able to continue to give that message to consumers, we need to protect our business. And do you know what the easiest way to protect this business is? To educate.
Kipper: I completely agree that education is at the forefront. If you couple the engagement with the education and you throw in a great deal of passion, I don’t know how you wouldn’t be successful.
Q: What are the most common mistakes that you see advisors make that lead to enforcement actions?
Kipper: One of the most common ones is not knowing your product and overpromising what is not there. So if you know your products well, educate yourself and follow that, you will have fewer problems. I think that’s so key and will continue to diminish the number of complaints and enforcement actions.
O’Brien: What we see often is in advertising. Misleading advertising, seminar pitches that are misleading or aren’t in compliance with a state’s advertising and promotion law. You’ve got great resources out there; use them. Your marketing organizations and carriers are very attuned to what is compliant, so use the resources that are there for you. Don’t go it alone. Moore: Something I’ve observed in the insurance industry is that product innovation is always a step ahead of regulation. Use your own instincts and experience and that little thing inside you that says “I don’t know if that’s a good idea.” Listen to it. Because if it feels like it’s not right, it probably isn’t. And it can catch up to you. I’ve observed it time and time again. We are so innovative in this industry: new, different, better, faster and cheaper. Just remember that regulators usually don’t know about it until someone drops in at their office and briefs them on it.
McCarty: One of the easiest things we can all do is just check our moral compass. That very first phone call from a client with a bit of a negative regarding the product can often be easily handled by getting right back to the person. We can blow out a match easily, but it’s hard to put out a forest fire. And every day that goes by where there’s a lack of communication with the client breeds mistrust, and we’ve seen it in our industry.
Moore: If I had to say there’s one thing I want you to walk away with, it would be that you need to protect your business. And when I say you, I mean you and the people who work for you, not you and your BGA or you and your FMO or you and the six insurance companies you regularly submit business to. I’m talking about you. Because ultimately, when it comes down to it, you’re the person who’s responsible for determining the products that you suggest to your clients and the suitability process that you go through. Don’t count on the fact that you’re getting 100 percent of what you need from your marketing group. Because there are other products and carriers out there and maybe you need to be looking at more than just annuities. Make sure you invest in your own business and understand the products that are available and make sure that you are helping to choose what is best for your client.
O’Brien: Fixed annuities are the product of choice for retirement from here forward. We are probably going to see a $200 billion mark in the next five years of index sales and probably $100 billion on non-indexed, traditional fixed. Fixed annuities are getting more and more accepted. We have three bills in Congress that are using fixed annuities as a solution to a retirement problem. They’re all pointing out a retirement problem and a lack of savings among the American people and recommending a fixed annuity solution. Fixed annuities are finally getting the notice and the acclaim that advisors have known about for years and years. But now, it is going to bust. You are going to have more sales than you can deal with and we’re very excited.
Kipper: If there was a takeaway from this session, I would say it’s make sure you stay educated and don’t ever get to that plateau thinking you know it all, because by the time you get there, it’s going to change. The same with being engaged. You must advocate for your clients, for your industry. It is listened to and heard both at the state houses and in Congress. These messages need to get across.