Even those who might concede there’s a place for FIAs would agree they are not as simple as they appear. “I’m not surprised that fixed-indexed annuities were lumped in with variable [annuities],” says Joseph A. Tomlinson of Tomlinson Financial Planning in Greenville, Maine, and a former actuary at John Hancock. “Certainly, both of these products are much more complicated than simple single premium immediate annuities.”
Will Clients Be Better Off?
Tomlinson acknowledges, however, that he’s still undecided on the overall ruling. “I’m seeing two different views from those who are consumer advocates—one group is disappointed and feels that DOL caved in to the financial services industry. Another group feels that DOL did a clever job putting teeth in the final rule, but in a way that will thwart industry attempts to fight back,” he says. “I can’t decide which group to side with—will have to wait and see.”
For most observers, that’s the crux of the matter: Is the ruling good or bad for consumers in the long run? “I think consumers will be better served,” says Tomlinson. “I’m certainly a fan of the general principle of advisors being required to act in clients’ best interest. [But] I’d suggest careful monitoring of what happens, then probably make some adjustments.”
Nevertheless, what critics like O’Brien at Americans for Annuity Protection fear is that the complexity of the new standard and its concomitant costs could backfire and actually leave consumers less well protected than they’ve been. “Americans will find that they will have to pay more for advice and will more than likely opt out of getting advice and just stay put,” she says, adding, “There was not one study or any analysis done by the [DOL] to demonstrate that individuals who buy annuities were underserved.”
Barry Stowe, the chairman of Lansing, Mich.-based Jackson National Life Insurance Co., a major annuities provider, is similarly apprehensive. “We are concerned that investors will find it more difficult and expensive to obtain the investment advice and products that they need to plan for, and live comfortably in, retirement,” he says.
Still, Stowe applauds the stated purpose of the more rigorous fiduciary standard. “We support the underlying objective of the new DOL rules,” he says. It’s a case of good in theory, but maybe not so much in practice. His fear: that the new rules will “make it more difficult and expensive for low- and middle-income Americans to get the financial advice and insurance products they so urgently need,” he says.
That’s far from an abstract concept. “Millions of Americans are approaching retirement with inadequate savings and income to meet their needs,” says Stowe. “At the same time, they are living longer and confronted with a complex investing environment, including historically low interest rates. We are concerned that the new rules will add to, and not reduce, the challenges facing consumers who are preparing for their retirement.”
Not Far Enough?
Yet another camp argues that the regulators should have gone further to secure consumer protections. On the other hand, the details about how the new rules will be enforced remain to be seen. Further tightening may yet follow.
“It’s too early to make that kind of judgment,” says Gadenne. “These things start and then there are always a lot of developments. It’s a little bit like a game of billiards. The balls are in motion, but you don’t necessarily know where they’re going to go.”
For some at least, those possibilities are encouraging. “Anything that makes us look at the client before we look at the product is a positive thing,” Gadenne says. “Perhaps we’ll see more of that now from the other regulatory bodies. Maybe the DOL is showing the way.”