A new organization of insurance and asset management firms is hopeful that the SEC‚Äôs proposed Regulation Best Interest will include a provision mandating discussion of risk, according to Jackson National Life Insurance CEO Barry Stowe.
The language would require advisors to ‚Äúbe mindful of and communicate to the consumer‚ÄĚ how exposed they are ‚Äúto market risk and to longevity risk,‚ÄĚ Stowe said. ‚ÄúCandidly, just about the only product in existence that mitigates those two risks is some form of an annuity product.‚ÄĚ
He spoke Oct. 4 at a panel of insurance CEOs who are part of the Alliance for Lifetime Income, a research, marketing and educational organization launched this year. The insurance industry is ‚Äúmassively supportive of a heightened standard‚ÄĚ for quality and conflict-free advice, Stowe says.
The backing for the Reg BI proposal in the wake of the vacated fiduciary rule falls in line with other areas of financial services. However, annuities are among the products and securities most often involved in client arbitration cases, and the lack of a definition of best interest in Reg BI creates legal ambiguity.
The new organization aims to help advisors and clients meet the income challenges posed by longevity, and annuity sales have already rebounded following a federal appeals court decision effectively killing the rule earlier this year.
‚ÄúThe workings of how these products do what they do can be complex. And that needs to be fully disclosed and fully discussed,‚ÄĚ said Stephen Pelletier, the COO of Prudential‚Äôs U.S. business. ‚ÄúBut what really also needs to be addressed is the benefits. And the benefits are not so complex.‚ÄĚ
He added that annuities are ‚Äúthe only solutions that combine growth potential, downside protection and a guaranteed income stream.‚ÄĚ
Only about 38% of U.S. households have an annuity or pension addressing their lifetime income needs, according to the organization. It has tapped eight research fellows, including two former officials in President Obama‚Äôs administration, to study retirement income, security and longevity.
By the end of the year, the organization will release a tool for advisors and clients to assess their readiness, in the form of a score between 0 and 850, according to Seth Harris, a fellow who served as acting secretary and deputy secretary of the Labor Department under the previous administration.
The organization, which also counts MassMutual, Invesco, Allianz, AIG, Nationwide, Lincoln Financial Group and Capital Group as members, is a 501(c)(6) nonprofit formally known as a business league, which allows it to engage in political advocacy.
Its activities so far have included research reports, television advertisements and virtual reality games on everyday risks and retirement income planning. The Alliance set up the virtual reality booths in New York‚Äôs Times Square after the event.
The organization‚Äôs efforts will focus on education, according to Jana Greer, CEO of AIG‚Äôs retirement unit.
The public doesn‚Äôt yet have enough knowledge about how annuities can serve as a kind of anchor in a portion of their portfolios to provide ‚Äúprotected guaranteed monthly lifetime income that is going to last for the rest of your life, no matter what,‚ÄĚ Greer said.
‚ÄúWhat we‚Äôre asking is that people learn more about their income needs, what they will be and then think about that anchor, which for us we believe is annuities, because they‚Äôre guaranteed,‚ÄĚ she said.
Two members of the new group own a pair of the largest independent broker-dealers in MassMutual‚Äôs MML Investors and the Lincoln Financial Network. Jackson, on the other hand, sold the assets of its IBD network National Planning Holdings last year, and AIG sold the Advisor Group IBD network in 2016.
Allianz also announced it would shutter its IBD, Questar Capital, only a week after the event. The fiduciary rule had prompted changes for compliance at annuity issuers and their distribution channels, which fueled a larger drop in revenue at the largest IBDs in 2016 than at the end of the Great Recession.
They recovered in 2017, though their combined disclosed annuity sales declined for the third year in a row. Stowe, the Jackson National CEO, describes advice as ‚Äúimmensely valuable,‚ÄĚ but he said the firm‚Äôs exit from the space didn‚Äôt hurt its ability to promote a greater emphasis on income needs in retirement.
‚ÄúThe decision behind selling our broker-dealer was that it was just no longer a core business for us, and we felt like we ought to be totally focused on manufacturing solutions,‚ÄĚ Stowe said.