How Annuity Distributors are Responding to DOL Rule
July 10, 2017 by Jay Cooper
The first phases of the long-awaited fiduciary rule have kicked in, but it remains business as usual for many annuity distributors. A review of compensation policies regarding annuities for some of the largest distributors shows that many have kept policies the same.
That could be due, in part, to uncertainty about the rule’s fate. President Trump has requested a review of the rule, but some of its provisions went into place June 9. Other provisions are scheduled to kick in January 1. Those include 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.
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A few distributors have pushed forward with changes to their annuity policies. Merrill Lynch, for example, has decided it will no longer offer commission-based annuities in advised retirement accounts. UBS, meanwhile, has revamped its compensation policies for advisors.
A roundup of the policies at some of the largest annuity distributors is provided below. Life Annuity Specialist’s sister publication, Ignites, contributed to the report.
Ameriprise: The broker dealer was one of the first to report it will continue to offer commission based products, Ignites has reported.
Cambridge Investment Research: Cambridge will continue offering commission-based products in retirement accounts.
Cetera: The distributor told advisors last fall that it will continue offering commission-based products in retirement accounts, Ignites reports.
Edward Jones: For traditional brokerage (non-retirement) accounts, any type of annuity or other investment option is still accepted. Separately, Edward Jones created a “select retirement account” in response to the fiduciary rule. That account is commission-based, and requires a $10,000 minimum investment to purchase variable annuities.
Investors can purchase fixed annuities through a fixed annuities account. That account has no minimum investment requirement in fixed annuities, though investors must have $100,000 in retirement assets with an Edward Jones advisor. Edward Jones is not allowing annuities in its fee-based accounts.
LPL: The broker dealer has had standardized variable annuity commissions in place since 2016, and will be standardizing fixed indexed annuities in July. LPL is planning for the eventual standardization of commissions across all annuity categories.
Merrill Lynch: As part of the fiduciary rule, Merrill Lynch Wealth Management decided to no longer offer commission based annuities in advised retirement accounts. In mid-May, the company added annuities to its Investment Advisory Platform, which is a fee-based platform.
Morgan Stanley: Morgan Stanley Wealth Management has imposed a 2.5% cap on commissions charged for annuities, ETFs, unit investment trusts and stock trades, Reuters reports. A spokeswoman for the firm confirmed the plans in an e-mail to Reuters, saying the caps “will lower client costs, in some cases substantially.” Reuters could not confirm whether Morgan Stanley had previously capped commissions at a higher rate.
UBS: The company has amended the way its financial advisors receive compensation on retirement assets. As part of the change, the products financial advisors sell or the advice advisors give will no longer have a bearing on how they are compensated on those retirement assets (for non-retirement assets their compensation model remains the same).
Instead compensation on retirement assets will use each advisor’s return on retirement assets from 2016 as the calculator for their compensation from June 9 to December 31, 2017. That return on assets will remain constant through the remainder of the year and will be used to calculate compensation on retirement assets on a monthly basis. The only variable will be if those assets increase or decrease. The divisor remains the same whether there are commissionable trades, financial planning advice or any range of products sold.
Wells Fargo: In a letter to clients Wells Fargo explains that it remains open to both commission-based and fee-based structures. “Some investment firms have announced they will limit client choice in anticipation of the complexities they face in order to comply with the DOL rule. At Wells Fargo Advisors, we believe you deserve choice,” the letter states. “We remain steadfast in our pledge to continue to offer investment advice through traditional, commission-based retirement accounts, as well as fee-based advisory retirement solutions.”
