AICP Heartland Chapter E-day

AIPC Heartland Chapter E-day at the Des Moines Marriott Downtown

With the AICP 2017 Heartland Chapter E-Day right around the corner, I look forward to the opportunity to see many familiar faces as well as meeting those I haven’t yet had the pleasure. I’ve never been to Iowa, so the short trip to Des Moines will knock another off my list of states yet to visit. Rain seems to be likely, so my visit may not extend far from the hotel, but it still counts as a visit, right??

For us “Lifers” the Life, Health & Annuity topics should prove to be very interesting! The DOL Fiduciary Rule is something keeping many of us at CCS busy, so learning what others are doing to help their clients prepare will be insightful. The implications are so broad; from advertising to issue processes – one can only wonder how things will look when everything is said and done. And of course, I am very interested in hearing more about my home-state, California! I don’t know anyone who can talk about their CA filing without a groan or sigh – it is one fun state!! For those of you who don’t know, I live in CA and travel to the CCS Greenwich, NY office regularly. I love being bicoastal; each month, I get to experience the best of both worlds from sunny So Cal beaches to quaint upstate villages – what more could a girl want? 

If you know me, you know that I will be so very happy to see you in just a day or two. If we haven’t yet met, please come by the CCS exhibit and introduce yourself! I will have our famous Compliance Heroes as well as our super cute CCS Cows to send home with you, plus chocolate and CCS info if you are interested, so come on by – I look forward to seeing everyone soon! Iowa, here I come!

Jumping on the FIA Birthday Bandwagon

There has been a small flurry of publicity around the 20th birthday of fixed indexed annuities. (e.g., InsuranceNewsNet, February 2015, p. 6 Editorial, “Happy 20th Birthday Indexed Annuities!”  and “Fixed Indexed Annuities Celebrate 20 Years”)

I read the first in this list, Mr. Morelli’s editorial, yesterday. The lead is that “Fixed index annuities want what any 20-year-old desires: Acceptance and Respect.” The piece acknowledges the “bad boy taint from years past” but then appears to suggest that the taint may not be as far in the past as that line suggests: “Sometimes those [marketing] messages and products have gotten a little too creative.” “Some companies were trying to delivery on an impossible promise.” “Aggressive marketing.” “Aggressive selling to prospects in their 70s and 80s and you had the makings for public revulsion.”

There is a mention of “uncapped” strategies that are the latest marketing concern he correctly notes that this marketing is getting attention from regulators. See Iowa Bulletin 14-02 dated September 15, 2014. Morelli says that analysts such as “Sheryl Moore of Moore Market Intelligence say that those products are built so they will have the same result as pretty much any other FIA.” If FIAs do want acceptance and respect, then the “aggressive” and “creative” marketing has to stop.

To “shake the bad boy rep,” FIAs have to be marketed in a fair and balanced way, making clear what they can and cannot do, what they offer protection from and what the costs of that protection are. The bad boy rep can, perhaps be turned around, but it will mean that those who create the “aggressive” and “creative” marketing material have to stop and they have to let the product become boring. If bad boys do change, they may be perceived as boring. But it isn’t only the products that have to shake the rep, it is the people who sell them. If the product is going to get real respect in the next 20 years, the people who create marketing materials about FIAs and the people who sell FIAs are going to have to come to terms with a little boredom.

Morelli concludes: “How will the FIA be taken seriously as a retirement vehicle? The same way in which any 20-year-old shakes a bad rep: Make clear promises that they keep, time after time, year after year.” That is true for the products and also for the insurance producers selling the product, though I would modify it a bit: Give real information that is fair, balanced, complete and accurate, time after time, year after year. Then perhaps the FIA will grow into a mature and respectable adult.

Colorado reminds producers they can’t charge fees for services already compensated through commissions.

Colorado has repealed and repromulgated Regulation 1-2-9, effective May 1, 2014. Much of this new regulation is identical to the previous version. However, of note is the new Section 3, Applicability. The repromulgated Reg. 1-2-9 states that “This regulation shall apply to all insurance producers and insurance agencies over whom the Division of Insurance has authority, with the exception of public adjusters and public adjuster agencies. This regulation does not apply to the sale, solicitation and negotiation of bail bonds.”

That is important for those of us who are on the life/annuity side because the list of itemized acts for which imposition of fees is prohibited may sound more like Property Casualty. The 2014 version of the regulation makes clear it is not so limited. The new version also has definitions and includes a definition of “wholesale intermediary” as “for the purposes of this regulation, a person or organization that deals directly with a licensed retail producer and not with a consumer.”

We get a lot of questions about when fees can be charged in addition to a commission and we see many types of advertising materials that refer to charging fees without being clear what the fee is for and that there is no duplication or “double dipping.”

The “Advertisements Of Life Insurance and Annuities Model Regulation (Model 570)” and most state regulations have language that we cite to warn producers that they should not look to charging fees as an easy way to boost their income. From Section 5 of the model: “No insurance producer may use terms such as ‘financial planner,’ ‘investment adviser,’ ‘financial consultant’ or ‘financial counseling’ in such a way as to imply that he or she is generally engaged in an advisory business in which compensation is unrelated to sales unless that actually is the case. This provision is not intended to preclude persons who hold some form of formal recognized financial planning or consultant designation from using this designation even when they are only selling insurance. This provision also is not intended to preclude persons who are members of a recognized trade or professional association having such terms as part of its name from citing membership, providing that a person citing membership, if authorized only to sell insurance products, shall disclose that fact. This provision does not permit persons to charge an additional fee for services that are customarily associated with the solicitation, negotiation or servicing of policies.” (Emphasis added.)

In Colorado, this newly revised and reissued regulation provides additional guidance about what services cannot be the basis for a fee and also what must be done in the event a fee is charged. We strongly recommend that any insurance producer in Colorado who is contemplating charging a fee for services consult this regulation in addition to Regulation 4-1-2 — ADVERTISING AND SALES PROMOTION OF LIFE INSURANCE AND ANNUITIES.

Compliance With or Without Enforcement

On January 17, 2014, Stan Haithcock, aka “Stan The Annuity Man,” wrote a piece for LifeHealthPro titled “It’s time to tax all annuity agents.” In it, he advocates a $25 assessment/fee/tax on each annuity application to fund a not-for-profit designed to accomplish three (3) specific goals. He sets them out as:

  • Education: ongoing agent education and the creation of legitimate annuity certifications
  • Branding: enhancing the annuity brand while framing a consistent consumer message
  • Protection: running ‘factual mirror’ ads to combat the current misinformation and hype on the internet, TV, and radio

One of his rationales for this approach is to “factually point out how the annuity industry continues to ignore unsuitable sales and advertising practices, and seems to care less about protecting the brand.” I don’t totally agree with that. I think there is a wide range of “caring” about suitability, advertising practices and protecting the brand. I certainly see situations in which it appears that there is a lot of ignoring going on, but I see plenty of situations in which that is not the case. A significant amount of our business is due to some players, big and small, in the annuity industry caring about precisely these issues.

But the other part of his rationale is that “It’s a fact that nothing is enforced, and there are no repercussions for anything said or promoted to achieve the beloved annuity sale.” And that isn’t all; “If you disagree with this, then you are from another planet and probably are under the delusion you have six pack abs.” I don’t agree with Haithcock that “nothing” is enforced, but there is no doubt that much more could be done from an enforcement perspective.

What is more perplexing to me is how this not-for-profit will address the problems he cites. If agents base their behavior only on whether or not there will be an enforcement action against them, his solution will not work because it does not do anything to increase enforcement. To do that, the assessment/fee/tax would have to go to the DOIs to increase their enforcement units. That won’t happen and he doesn’t advocate that.

I also do not think that Haithcock presents a completely accurate picture of the problems related to suitability and advertising compliance. Most of the folks we talk with here want to do the right thing, but they either lack awareness of what “the right thing” is in a given situation, or they lack the wherewithal to implement policies and procedures to ensure that sales are consistently compliant. If my perception is accurate, then making additional resources available may be helpful as may be the certifications/designations that he proposes. But I don’t think it would be more than a marginal improvement because resources for individual producers will still be an issue.

There is another possible way that resources may come to be allocated differently, however. A recent consent order issued by the Kansas Insurance Department, again a leader in this area, held a life insurance company responsible for the advertising of an insurance marketing organization (IMO) in a number of ways. The order specifically includes not only website and consumer-facing advertising, but also material used for the recruitment of agents. My belief is that this life insurance company will join the growing number of carriers concerned and taking an active role in compliance at IMOs and agencies. In my opinion, this carrier involvement in distribution compliance is likely to be very successful in curbing the suitability and advertising issues raised by Haithcock, and also a host of other sales practices that have tarnished the reputation of the life industry and its products.

I would not oppose a not-for-profit of the type proposed, but it is my belief that approaches like the one taken by Kansas are more likely to achieve significant results. I hope carriers are paying attention and are thinking about ways they can avoid joining the one cited in the Kansas consent order. Looking at compliance in independent distribution is something that carriers have historically been hesitant to do, but the time to do so may be upon us.