With Eye on DOL Rule, Voya to Debut Fee-based Indexed Annuity
May 5, 2017 by Warren S. Hersch
Latching onto a growing market, Voya Financial is planning to release a fee-based fixed indexed annuity, according to a top executive at the company.
Carolyn Johnson, CEO of Annuities and Individual Life at Voya, says the New York-based insurer is developing a fee-based version of its commission-based product, Voya Journey Index Annuity. The single premium deferred annuity, like other fixed indexed offerings, provides principal protection, tax-deferred growth and a guaranteed interest crediting rate, plus the ability to convert the account value into a lifetime guaranteed income.
Like its commission-oriented counterpart, the fee version of Journey will feature indices from JPMorgan and Citigroup, including the J.P. Morgan Meridian Index and the Citi Dynamic Asset Selector 5 Excess Return Index. The index-linking provides a performance interest credit during the first six years and an uncapped point-to-point return of the participating index (or combination of indices) in year seven. Annuity holders can alternatively select a guaranteed 7-year fixed rate strategy that accumulates interest, regardless of market conditions.
“On the fixed indexed annuity side, a year ago there were no products that were fee based,” says Johnson in a interview. “There is a real opportunity to target [fee-based advisors] who are not selling fixed indexed annuity products.”
Broker-dealers and other insurance intermediaries are accelerating their push into the fee-based advisory world because of the Department of Labor’s Fiduciary Rule, which (absent further changes) is set to go into effect when the DOL completes its review of the 1,000-plus pages of regulations on June 9.
In addition to Voya Financial, Pacific Life has unveiled a fee-based product, Pacific Index Advisory, which can tie the annuity’s account value to the S&P 500 Index or to an MSCI EAFE Index that tracks the performance of MSCI country indexes operating in the Europe, Australasia and the Far East. Index-linked interest can be credited using a “point-to-point” option or performance-triggered index option.
On February 7, Allianz Life debuted a fee-based FIA, Retirement Foundation ADV Annuity, that lets clients generate interest using any of four index allocation or options or a fixed interest option. The product also boasts an income benefit rider that locks in the ability to increase withdrawals starting at 45, as well as riders providing a nursing home benefit and (at extra cost) flexible withdrawals.
Lincoln Financial debuted in February a fee-based fixed indexed product, Lincoln Core Capital. The product mirrors Lincoln’s commission-based FIA, Lincoln Covered Choice.
Voya’s product could be useful to an important distribution segment in the fixed annuities space: independent marketing organizations (IMOs). IMOs could be especially hard hit by the rule, and could benefit from selling products that are tailored for a post-Fiduciary Rule environment.
A proposed Best Interest Contract class exemption, released January 19, would require IMOs seeking financial institution status under the rule to generate $1.5 billion in fixed indexed annuity contract premiums for each of their last three fiscal years — a threshold that perhaps only a dozen of an estimated 350 IMOs can meet.
Because of the class exemption and other requirements of the DOL rule, many IMOs are expected to merge or partner with others that are fiduciary-rule compliant. Others are shifting their focus to cater to fee-based registered investment advisors (RIAs).
Example: AmeriLife Group, a Clearwater, Fla.-based IMO oriented toward the senior market. Earlier this year, the company launched an RIA unit for producers needing an alternative channel through which to sell fixed indexed annuities. Other IMOs are likely to follow suit — or already have.
Yet, there’s another reason for the heightened focus among annuity manufacturers on fee-based products: the ability to extend distribution to tens of thousands of investment advisor reps (IARs) and other fee-based financial professionals who don’t now offer fixed index products.