Fixed Indexed Annuity Sales Surge Amid Fiduciary Rule Concerns

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Sean Forbes

July 6 — The fixed indexed annuities industry has historically been successful in its battle for independence from federal and state securities regulations that would tighten the reins on its products, but may have met its match with the DOL's new fiduciary rule.

However, the industry hasn't given up the fight, and is sounding an alarm.

The fiduciary rule “will, in many cases, threaten the very existence of” the industry, “result in immediate and unrecoverable losses of market share, and result in unrecoverable economic losses for which no adequate relief can later be granted,” the National Association for Fixed Annuities said in a lawsuit filed in June against the Department of Labor.

Market Synergy Group Inc., a producer and distributor of annuities, filed a separate lawsuit saying the rule would “irreparably damage” the independent insurance agent business and its service model.

The DOL's rule (RIN:1210-AB32) tightens conflict-of-interest restrictions on financial advisers working with investors saving for retirement.

A fixed indexed annuity (FIA) is a type of fixed annuity that earns interest based on changes in a specified market index, such as the S&P 500, which measures how the market or part of the market performs. The interest rate is guaranteed to never be less than zero, even if the market goes down. FIAs are regulated as insurance products, not as securities.

Positive Sales in 2016

Annuities sales in the U.S. this year, both those recorded for the first quarter and those expected for the second quarter, don't seem to support industry concerns that the rule will hamper annuity sales.

Total annuity sales for the first quarter of 2016—including fixed and variable-rate annuities—were $58.9 billion, 9 percent higher than prior year results, LIMRA, a research organization for the financial services industry based in Windsor, Conn., said in a May report. Moreover, indexed annuities were up 35 percent compared with the first quarter of 2015.

Sales are also expected to continue to increase in the second quarter, a LIMRA official told Bloomberg BNA on June 24.

“We don't believe any of the trends shown in the first quarter will be reversed in the second quarter,” said Catherine Theroux, assistant vice president, and director of public relations at LIMRA.

The Washington-based Insured Retirement Institute, which lobbies on behalf of the insurance industry, found results similar to LIMRA's, and also expect FIA sales to remain strong.

However, an IRI spokesman said sales of FIAs have an uncertain future after the rule takes effect in April 2017.

“Once the final rule goes into effect in April 2017, we are concerned that the rule’s absence of a uniform mechanism for interpretation and enforcement will place constant legal liability on market participants by transferring regulatory and enforcement power to the courts,” Andrew Simonelli, vice president for communications at IRI, told Bloomberg BNA July 5 in an e-mail. “This will lead to inconsistent interpretations of the rule, confusion for advisors and financial institutions, and firms in some cases being forced to curtail their services and the availability of retirement income products.”

The IRI, along with U.S. Chamber of Commerce, the Financial Services Institute Inc., the Financial Services Roundtable, the Securities Industry and Financial Markets Association, as well as several Texas-based chambers of commerce, filed a lawsuit in the U.S. District Court for the Northern District of Texas seeking to overturn the rule.

“It remains to be seen how market participants will respond between now and the full implementation of the rule in 2017,” Simonelli added.

‘Game Over'?

Some of the lawsuits challenging the fiduciary rule have also charged that it violates the First Amendment by burdening commercial speech between sellers of fixed indexed annuities and consumers.

Indexed annuity insurers may have just cause to worry about their free speech rights claim, although not for the reasons they've given, Andrew D.W. Hill, president and co-founder of Andrew Hill Investment Advisors Inc. in Naples, Fla., told Bloomberg BNA June 28.

The fear isn't about burdening commercial speech, but that too much disclosure about high commissions could scare away potential customers, resulting in lost business—or even worse, Hill said.

“If you’re making 4, 5, 6, 7 percent in commissions” on FIA products, “it’s game over” for insurers that have to disclose how they’re compensated, Hill said.

To contact the reporter on this story: Sean Forbes in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

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