Look For Innovation
If change is the one constant in life, so innovation in the annuities industry can almost be guaranteed -- especially in light of a changing regulatory environment.  "Realistically, I expect the same carriers to be representing the space with the same risk profile and profit expectations [after the DOL rule change]," says Judson Forner, vice president of investment marketing at ValMark Securities, in Akron, Ohio. "Products will evolve to include more indexed annuity strategies and advisory solutions with traditional income and death-benefit riders. The design of future solutions may seem abstract in comparison to products available today, as manufacturers look to deliver effective products within the new framework of what is allowable. Ultimately, while they may look and feel different, they will deliver similar value."

Others predict that L-share variable annuities, which are pricier than the more common B shares, could be eliminated as a result of the new regs. L-share VAs offer greater liquidity -- in the form of shorter surrender periods -- than B-share VAs, but they charge trailing mortality, expense and administration (MEA) fees of, on average, 1.65 percent -- which is significantly higher than the average B share's 1.15 percent MEA charge. That may be hard to justify in the new fiduciary environment. Two weeks ago, Commonwealth Financial Network eliminated L shares

"Traditional L-share products have been under pressure for some time and will continue to face significant headwinds," confirms Forner. "It is very possible that the L-share chassis is eliminated similar to B-share mutual funds, in the near future."

To be sure, there are also A- and C-share VAs -- a complicated alphabet soup that may soon be eliminated. "The problem is that the industry has designed these as different products with different names and different prospectuses and client literature," says Stolz. "That makes them difficult to present side by side. I just don’t see how this structure will be possible in a post-DOL world. So, yes, I believe this rule will eliminate the various share classes as we know them today."

He predicts it will come down to two types -- those with low surrender charges and those with none at all.

For the time being, though, the industry will have to wait and see what develops. That's not necessarily bad news. "This is very good for the industry and the profession," insists John Graves, an accredited investment fiduciary and owner of Ventura, Calif.-based The Renaissance Group. "The best advice [for advisors] is to become a fiduciary. Always act in the best interest of your client. Our profession should begin and end there. Advisors are fiduciaries; advisors are not salesmen."
 

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