Insurers developing fee-based fixed-indexed annuities post-DOL fiduciary rule

Allianz, Voya, Symetra and Lincoln Financial are forging ahead into virtually uncharted waters for product development

Jul 14, 2016 @ 12:01 am

By Greg Iacurci

Insurance companies are going full steam ahead developing fee-based fixed-indexed annuities due to greater anticipated demand from distributors for advisory products as a result of the Labor Department's fiduciary rule.

Allianz Life Insurance Co. of North America, Voya Financial Inc., Symetra Life Insurance Co. and Lincoln Financial Group executives confirmed to InvestmentNews they are currently working to develop such products, some of which could hit the market by the end of the year.

“There's going to be a whole bunch of these products launched,” said Dan Guilbert, executive vice president of Symetra's retirement division.

Allianz, Symetra, Voya and Lincoln were the No. 1, No. 8, No. 9 and No. 10 sellers of fixed-indexed annuities, respectively, in the first quarter this year, according to market research firm Wink Inc.

This sort of fee-based product development is new among fixed-indexed annuity product manufacturers. Midland National Life Insurance Co., a unit of Sammons Financial Group, is the only other insurer to date to have launched a fee-based, fixed-indexed annuity, according to Sheryl Moore, president and chief executive of Moore Market Intelligence.

That particular product, MNL Prosper 5, was launched in December 2015 — prior to release of the Labor Department's final fiduciary rule in April — and is exclusively distributed through Raymond James & Associates.

The Department of Labor's fiduciary rule, which raises investment-advice standards in retirement accounts, will likely accelerate an ongoing trend among broker-dealers toward fee-based advisory business, according to Carolyn Johnson, president of annuities at Voya Financial.

Commission fixed-indexed and variable annuities will be exposed to greater risk than those sold on an advisory basis, in which the adviser charges a level “wrap” fee on a client's account, because of a DOL-rule feature known as the best-interest contract exemption (BICE). The exemption allows for the sale of commission products, but only if additional standards are met.

“To some extent, there's been a new sense of urgency in the last year or so given the DOL rule,” Mr. Guilbert said. “Fee-based products would in general align with a lot of what the DOL is promoting.”

Allianz and Symetra had, in fact, considered launching a fee-based fixed-indexed annuity in years past, but the post-DOL-rule landscape is such that product development now makes sense, executives said.

“This is a market we've been looking at, and we see the momentum there to justify building that out,” said Matt Gray, senior vice president of product innovation at Allianz, which had $8.7 billion in fixed-indexed annuity sales in 2015.

Fixed-indexed annuities have seen sales growth in each of the last eight years, hitting a record $54.5 billion in 2015. That's occurred as variable annuity sales, still more than double those of fixed-indexed annuities, have been falling.

Rather than point to the DOL fiduciary rule explicitly, Lincoln spokesman Eric Samanksy said the firm began working on the RIA initiative at the start of 2016 due to “growing appetite for fixed indexed annuities in this space.”

Similarly, although Midland National's product “could be advantageous in a post-DOL rule world,” spokesman John Myers said it's not the reason the product was developed.


Neither Allianz, Voya nor Symetra executives have yet settled on a final structure for their fee-based products, although they envision the products coming with optional living-benefit riders, a feature popular on commission fixed-indexed and variable annuity products.

Lincoln's product, meant specifically for the RIA distribution channel, will have an optional living-benefit rider, Mr. Samansky confirmed.

Symetra, which had $2.4 billion in fixed-indexed annuity sales last year, envisions launching a suite of fee-based fixed-indexed annuities similar to its existing commission products, with optional living-benefit and death-benefit riders. He doesn't expect to offer that all “on day one,” but foresees that outcome if fee-based products continue to garner interest from advisers.

“You don't necessarily have to make all sorts of product changes because it's fee-based,” Mr. Guilbert said.

Mr. Gray of Allianz said the firm is currently gathering feedback from distribution partners to determine the products' ultimate structure, but said fee-based annuities will likely be designed around the firm's “most competitive products” on the market.

Midland National's fee-based fixed-indexed annuity, which offers a five-year surrender charge and an optional income rider, is not based on a commissionable version of the product, Mr. Myers said.

The way Raymond James advisers are compensated through the Midland National product hints at what a typical compensation structure could look like with fee-based fixed-indexed annuities. The annuity is treated like any other asset within the advisory account on which Raymond James advisers receive an advisory fee, but the fee doesn't come directly from the policy because it would trigger a taxable event.

Rather, the fee that would otherwise come from the annuity comes from a cash portion of the account, according to Scott Stolz, senior vice president of Private Client Group investment products at Raymond James.

Generally, because insurers don't pay an upfront commission on a fee-based product, that money could theoretically go toward making annuity features more attractive, through lower surrender charges or higher caps on a credited interest rate, for example, Ms. Moore said.

As with fee-based variable annuities, contract charges (mortality, expense and administration charges) in fee-based fixed-indexed annuities would also be lower than on a commission product, with the caveat that the adviser's fee is then overlaid on the contract cost.


Lincoln's product is likely to be the first to market among this group of insurers. The firm is planning to launch the annuity sometime in August, Mr. Samansky said. The firm is also exploring development of fee-based fixed-indexed annuity products for the broker-dealer channel.

Allianz plans to launch one in 2017, ahead of the initial implementation period of the DOL rule in April, and then “throttle up or throttle back” development of others based on reception in the market, Mr. Gray said.

There's a “good chance” Symetra will launch its product by the end of this year, Mr. Guilbert said. The timing for Voya's is a bit less clear, with Ms. Johnson saying product development typically takes “several months.”


Fee-based variable annuities have been around for several years, mainly as investment-focused vehicles aimed at accumulation, low cost and tax deferral in non-qualified accounts. Those represent only a fraction of total VA sales, the majority of which are sold in qualified accounts with income riders.

Similar to the dynamic with fixed-indexed annuities, insurers have become more interested in launching fee-based VAs with living benefit options in qualified accounts because of the DOL fiduciary rule. That way, for brokers interested in doing advisory business due to the DOL rule, there'd be a pivot product for them from the commission side of the house.

Jackson National Life Insurance Co. recently filed for such a variable annuity, as did Great-West Life & Annuity Insurance Co.

“All the distributors out there are figuring out right now what their response to the DOL might be,” Bob Shaw, head of Great-West's annuity and life insurance business, said. “Some might continue to write commission-based products using the BICE, others will go fee-based. I'm sure some will go both routes.”

Despite the DOL rule, Mr. Guilbert of Symetra doesn't believe fee-based sales will necessarily cannibalize commission-based ones because many distribution partners have expressed interest in utilizing the BICE. As such, the firm is determining how it could revamp its existing commission fixed-indexed annuity platform for those intermediaries.


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