NEW YORK - Allianz Life Insurance Company of North America is changing the way it sells equity index annuities from a model based exclusively on "independent" wholesalers to one in which large broker-dealers may access EIAs directly.
Starting Nov. 6, broker-dealers with at least 1,000 registered reps will have the option of purchasing the annuities directly from wholesalers employed by Minneapolis-based Allianz as well as from so-called field marketing organizations.
Allianz is the largest provider of EIAs, with about a one-third market share.
The universe of broker-dealers that will have direct access to Allianz's EIAs will comprise about 50 of the industry's biggest firms, said Patrick Foley, chief marketing officer at Allianz.
He declined to comment on which firms Allianz has approached about selling its EIAs.
"Allianz's decision to go direct to the broker-dealers is an audacious move and an unambiguous signal that the center of gravity in EIA distribution is shifting to the member firms," said David Macchia, chief executive of Wealth2k Inc., an annuity marketing firm in Hingham, Mass. "Allianz has effectively vested the broker-dealers with the power to unilaterally and instantly transfer their registered reps away from FMOs in favor of their own hierarchies."
The move by Allianz will have financial consequences for FMOs.
"The FMOs will lose the 2% override that they received from distributing these Allianz products - they can't be happy about losing that business," said Daniel Barrett, president of Fund Advisor Inc. in Petaluma, Calif., which is a wholesale distributor for Life Sales in San Diego, an FMO. "It's more money in Allianz's kitty."
The move comes at time when increased regulatory scrutiny is leading firms to bypass FMOs in the sales of EIAs.
"It's clear to me that at the heart of Allianz's decision lies a cold-hearted calculus that 05-50 [the guidance from Washington-based NASD requiring broker-dealer supervision of EIAs] made it impossible to distribute EIAs [through the FMOs]," Mr. Macchia said.
But Mr. Foley said that the FMOs - including the independent ones and the ones in which Allianz has an ownership interest - already have been notified of the change and are not complaining.
The FMOs agree that the large broker-dealers that prefer the traditional variable annuity "direct wholesaler" model to the FMO model should have the option to switch, he added.
Large broker-dealers don't need traditional FMO services, Mr. Foley said.
"That's why the FMOs never did make significant inroads with those firms."
Smaller broker-dealers - those with fewer than 1,000 reps - generally do need and want those services, and will continue to go through the FMOs," Mr. Foley said.
Despite his assurances, some remain adamant that Allianz's actions spell trouble for FMOs.
"In addition to this distribution change, it's become more difficult for FMOs to do business with Allianz, because the company recently revamped many of its products and started its own broker-dealer," said Dorice Maynard, vice president of Premium Producers Group LLC in Santa Ana, Calif., an EIA-rating firm.
She also noted that Allianz historically has refused to do business with the smaller FMOs.
"The back-office setup of the broker-dealers will replace work that the FMOs did," Mr. Barrett said.
Questions of loyalty
"Top EIA [reps] will have to confront some very difficult decisions," Mr. Macchia said. "Will they rally around the independent-marketing companies? Or will they realize that they may quickly become the victims of competitive disadvantage as the broker-dealers increasingly embrace EIAs under an Allianz-led alternative?"
Allianz laid off 200 employees - 7% of its U.S. work force - in August due to sagging EIA sales and increased compliance costs.
EIA sales are down about 20% from where they were a year ago, according to Mr. Foley, due mainly to increased regulatory costs.
Some industry observers say that Allianz's marketing is over budget and the company wants to reduce expenses to make up for several failed FMO distribution initiatives.
Mr. Foley, however, insisted that the change had nothing to do with cutting costs. In fact, he said, it will cost the same to sell through internal wholesalers as it did to sell through FMOs.
"Large broker-dealer reps who have a strong relationship with their FMO might miss doing business with that firm," Mr. Foley said.
But others that have a strong relationship with Allianz-employed wholesalers will prefer the face-to-face model, he added.