OneAmerica Unveils Post-DOL Twist on Fee-Based Advisor Comp
June 21, 2017 by Jay Cooper
OneAmerica is launching a new compensation structure for its group annuities sold to retirement plans that allows advisors to move to a fee-based payment, while preserving many of the features of the commission structure. Maintaining some of those similarities will be essential to keeping advisors interested in serving the small- and mid-size plan market, OneAmerica executives say.
Instead of paying the advisor a commission, OneAmerica credits the advisor payment to a revenue account. The revenue accounts are created at the plan level and do not require deductions from participants’ accounts. The fee paid to the advisor is debited from the revenue account the same day it is credited, then paid to the advisor at the end of the month. There is no plan minimum, and any plan size or type can use a revenue account.
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The new structure preserves the calculation and timing of the payment to the same method used in traditional commission-based structures. But debiting the payment through a revenue account qualifies it as a fee-based payment. OneAmerica executives are confident the new structure is in line with the Department of Labor’s fiduciary rule, and that the revenue account qualifies as a fee-based arrangement.
“We’ve vetted this thoroughly with both inside and outside counsel,” says Terry Burns, assistant VP of products and investments for OneAmerica Retirement Services.
The similarities to the commission based structure are by design. Burns says the small- and mid-size plan market, which he defines as those under $50 million, is one of the areas at risk of negative disruption from the DOL’s fiduciary rule. Advisors allocate a lot of time and effort in helping plans in the first year the group annuity is sold. If they cannot get compensated for those efforts up front, Burns says, many advisors are likely to vacate that market.
“They should be compensated for the time and effort they’re putting into it. It may not be worth it for a smaller [upfront] fee” under a fee-based arrangement, Burns says. “We want to help advisors stay engaged in that market so small businesses have advisors to help the plans and their participants.”
OneAmerica’s revenue accounts come just days after some provisions of the Department of Labor’s fiduciary rule went into effect June 9. Other parts of the rule are scheduled to phase in January 1. Among them is the rule’s Best Interest Contract Exemption, which requires advisors who sell products to retirement clients on a commission basis to sign a contract with those clients disclosing potential conflicts of interest. While the industry makes preparations for the rule, its ultimate fate remains in limbo after the DOL announced plans to solicit information from the public on revising the rule.
While the revenue accounts make it easier for advisors to adopt a fee-based structure with future sales, Burns says it also makes it easy to convert a plan from a commission to a fee-based structure.
Burns believes the revenue accounts provide a good solution to advisors, though he notes One America is not alone in trying to find new compensation solutions for advisors. “We think we’re aware of other group annuity providers having services similar to the revenue account,” Burns says.
The revenue accounts are not OneAmerica’s first change to accommodate the fiduciary rule. In response to advisor demand, in late 2016 OneAmerica expanded its group annuity platform to include zero revenue sharing funds, in which participants pay only the investment management expense.
