This year will not be boring.
And these are not mere distractions facing us — the presidential election, the Department of Labor rule and who did Negan kill in “The Walking Dead”?
I won’t touch the first item and I will reveal that I have my money on Abraham for the last one, but let’s take a good look at the one in the middle. The damn DOL.
We have been so consumed by the details of what the department did in its Conflict of Interest rule that it might be difficult to see if we have any real answers. So, we’ll distill some of the information here.
We have an extensive article in this magazine on what we know at the moment, but the most important element is a clearer future. The marketing organizations are key to a successful independent agent channel. But it always comes down to the agents themselves.
Agents depend on marketing organizations (IMOs, I know there are FMOs and BGAs, but for our purposes — IMOs) for support in their operation and, most importantly, for access to products. IMOs need agents to sell and sustain the whole business. After all, a majority of fixed indexed annuities are sold by independent agents.
Sales Drive Product Development
Good agents are gold. IMOs entice them with higher commissions and sales incentives. IMOs turn to insurers to supply these products.
That chain has led to booming sales but also to the unfortunate outcome of products that are primarily built to sell rather than serve.
Yes, FIAs do answer the consumer’s essential need for income security plus the opportunity for gain with an appreciating index. But here is where it gets tricky — how much of that is purely a marketing message?
The answer might be “none of it.” Many agents care about their clients and believe FIAs ensure a reliable lifetime income. This is, in fact, a public service when agents get Americans to secure their retirement in an uncertain future. Too many people are out there without a clue about how they are going to make it when their working days are done.
But if agents are putting a vast percentage of their prospects into the same FIA regardless of their situation, or even their age, then that is part of the problem. The other part is agents who troll prospects and clients for annuities to turn over for the sake of commissions.
These two scenarios are mostly from the bad ol’ days when the industry winked at questionable sales practices. Quite a bit of cleaning up has happened in the past decade, but those images persist.
IMOs and agents are left with the heavy lift of showing their value to consumers and the financial industry as a whole. Some of this is atoning for the sins of others, but the essence of this work is serving an American public in desperate need of direction and security.
Enter the ‘Reformers’
Sure, many people in the Cult of Fiduciary seem to present themselves as the Knights Templar protecting the Ark of the Best Interest Covenant. They are also looking past the sins in their own church. Where was the Securities and Exchange Commission when Bernard Madoff harvested billions of dollars like a scythe through wheat?
Madoff was a particularly egregious case, but the finance industry is rife with “advisors” who scammed millions and billions of dollars from consumers. Where are the comparable cases of that kind of behavior in the insurance world? Rare is the rogue insurance agent who gets very far with that level of criminality.
So, where does all this put independent agents? In a new reality that goes beyond what the DOL has done.
Even if the DOL’s effort is defeated or at least restricted, the drive to better client care will continue. The SEC has said it will come out with its own fiduciary rule. Maybe it will be able to overcome its own dysfunction to actually do that. Even if the SEC does not, something else will emerge.
This next year will be a reckoning for the annuity industry. Many agents are saying they have no direction but out. That might be. But others are seeing this as their opportunity to show that they can be the answer to America’s retirement crisis.
The Open Road
IMOs that are devoted to building processes that ensure transparency and efficiency are going to show the way. Transparency will be essential to demonstrating an adherence to the impartial conduct standard. In other words, you will have to show your work.
These IMOs and agents will be rewarded with an open road of reliable business. Many in the financial industry are saying they will not be able to manage the paltry sums of average Americans’ retirement savings. The Obama administration is saying that robots will ably handle the fragile future of this nation’s majority.
Is that our standard of care now? If you’re rich, you get an advisor — if you’re not, here’s the website you can give all your money to.
Insurance agents have always been the ones in the community, on the town council and at the kitchen table, talking to and caring for real people.
Regulators don’t know that. Analysts don’t see those relationships in the numbers. Advisors with billions under management move dollars without ever congratulating a client celebrating a grandson or consoling a widow enduring the worst days of her life.
The Real Question
Here’s the central question: Do insurance agents have a future under the DOL rule?
Without a doubt. But they will not be paid the same. Some incentives will disappear and some commissions will not be as lucrative. Processes will become more important.
Probably the most significant change will be the relationship between agents and IMOs. Agents can’t judge marketers solely on who will get them the best commission, but instead on who can ensure a structure that shows accountability.
Accountability has always been the foundation of insurance companies and their agents. Now they need to be able to show the work and the structure itself.
Our culture thrives on apocalyptic visions of zombies and illegal aliens, and we have precious few images of the goodness that guides our best people.
Consider this your cue.
Steven A. Morelli