US annuities redesigned to allow for fee-based compensation

By Andrew Rickard | January 16 2017 11:30AM

United States Department of Labor

Last year, the United States Department of Labor (DOL) introduced a new fiduciary rule which imposes a higher standard of care on those who offer retirement planning advice. Recent research from LIMRA shows that the new regulations are prompting insurers to change they way they design annuity products.

In a study released last week, The DOL Fiduciary Rule: Retail Annuity Manufacturers’ Perspective, LIMRA notes that 45% of annuity manufacturers in the US have or will introduce new annuity products in response to the DOL fiduciary rule. In addition, at least 1 in 4 variable annuity (VA) writers and 1 in 3 fixed indexed annuity (FIA) companies expect to be more innovative with their product design in 2017.

Much of this innovation has to do with the way advisors are compensated for selling annuities. “Three out of four annuity manufacturers either have or plan to build fee-based annuities,” says LIMRA. "Specifically, 53% of VA writers have or plan to introduce a fee-based VA and half of FIA manufactures will do the same in 2017."

Although only four distribution firms have publicly stated they will switch to only offering fee-based products, the study found that 65% of annuity manufacturers believe there will be a moderate increase in their fee-based VA product sales in 2017 and half believe there will be a moderate increase in their fee-based FIA product sales in 2017. "Currently, fee-based products represent less than one percent of overall VA and FIA sales," reads the report.

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