DOL rule puts new restrictions on indexed annuities
April 8, 2016 by Business Record Staff
Sales of indexed annuities could be adversely affected under new rules released this week by the U.S. Department of Labor, according to a local annuity expert. Several insurers specializing in indexed annuities are based in or have operations in Greater Des Moines.
Under the new rules, indexed annuities would no longer be exempt under the same standards as other types of fixed annuities, The Wall Street Journal reported. Rather, like variable annuities, advisers who want to sell indexed annuities will need to follow the requirements under what’s known as the best-interest-contract exemption.
The Labor Department on Wednesday said that variable annuities and indexed annuities should be “subject to the greater protections” of the best-interest-contract exemption “given the complexity, investment risks, and conflicted sales practices” associated with them.
Sheryl Moore, president and CEO of Moore Market Intelligence in Pleasant Hill, said the new rules will require a higher level of review on the part of the sales person selling the annuity.
“Currently there are 58 companies selling 378 indexed annuity products,” she said. Currently, the agent may have a choice of 20 suitable products that could be sold to a client. Under the new rules, effective Jan. 1, 2018, “the agent has to make sure he finds the one product in the best interest of the client.”
Consequently, “there is definitely going to be more administration, more forms and more disclosure to annuity purchasers,” she said. “Because of that, there will probably be a decline in indexed annuities. But I’m anticipating that indexed annuity sales are going to continue to do well because interest rates are so low.”
Moore said she doesn’t anticipate sales declining until the rule goes into effect in January 2018, and that there may be a “fire sale” effect in which sales increase in the interim.
Moore said it’s baffling that indexed annuities are being given different treatment than fixed annuities, which retained their exempt status.
“The DOL brought this up in the annuity industry because (carriers) offer trips and incentives and pay commissions, which could sway a sales person to get the incentive or a higher commission,” she said. “I’m really eager to see how the insurance companies will respond to this.”