DOL fiduciary rule delay boosts prospects for annuity sales

Indexed and variable annuities are likely to get a big bump in sales if the rule is delayed until July 2019.

A proposed delay to the Department of Labor’s fiduciary rule is leading to big increases in annuity sales projections next year.

The regulation, which raises investment-advice standards in retirement accounts, was expected to put a severe dent in product sales, especially for variable and indexed annuities. That slump has been playing out since the rule was issued in April 2016.

Limra, an insurance industry group, had been forecasting VA sales would end 2017 down 10%-15% from last year’s total, and that they’d fall a further 10%-15% in 2018, largely because of the DOL rule.

Indexed annuity sales were expected to decrease 5%-10% this year, and an additional 15%-20% the next.

Now, though, Limra’s estimates are much rosier for 2018: an increase of 5%-10% over 2017 for indexed annuity sales, and only a dip of between 0% and 5% for their variable counterparts. The estimates for this year remain unchanged.

The fiduciary rule, issued during the Obama administration, partially went into effect in June. However, what was widely regarded as the most challenging part of the rule to comply with — the best-interest contract exemption, the rule’s primary enforcement mechanism — isn’t currently scheduled to begin until January.

The Labor Department under President Donald J. Trump in August proposed a delay of 18 months to implementing that provision, which applies stricter compliance standards to products like variable and indexed annuities sold on commission (which most are).

The delay is widely expected to become finalized.

“With the best-interest contract exemption delayed through mid-2019, we feel this is going to benefit both indexed and variable annuity sales,” said Todd Giesing, assistant research director at the Limra Secure Retirement Institute.

Variable annuity sales have been on a multiyear slide, and the DOL fiduciary rule would have accelerated that trend. Indexed annuities, though, have been on a decade-long run-up, with 2016 being the product’s best sales year on record, at roughly $61 billion. (VA sales were roughly $105 billion last year.)

However, if it were to go into effect as is, the BICE was predicted to throw indexed annuity distribution into disarray. That’s because BICE doesn’t provide an easily identifiable way for many independent insurance agents, the primary distributors of the annuity products, to continue selling through entities called independent marketing organizations, as many do.

“There was a break in the supply chain,” Mr. Giesing said. “We assumed IMOs would find their niche, but it would take time.”

If the fiduciary rule delay becomes final, thereby pushing implementation of BICE to July 2019, the Trump administration may seek to change the rule depending on the outcome of an ongoing review, and as such could change the rule’s impact on annuities.