A sense of relief pervaded National
Association for Fixed Annuities
(NAFA) 2010 IMO Summit. The
meeting capped off a year of legislative
and legal victories that stunned not only
seasoned lobbyists but also the people
intimately involved in fighting the Securities
and Exchange Commission's Rule
151A, which would have treated indexed
annuities as securities rather than as
Many on the front lines of annuity sales
said the industry dodged a bullet when
a court decision overturned 151A and
Congress passed the Harkin Amendment,
which ensured that indexed annuities
would remain state-regulated.
James Jones, vice president of marketing
services with American Equity
Investment Life Insurance Co., said that
even though his company was deeply
involved in the anti-151A coalition, the
outcome still exceeded all expectations.
"I was surprised that not only did we
defeat 151A through the Harkin Amendment,
but it also was vacated in court,"
Jones said. "It saved our industry - what
an awesome turn of events."
Another aspect that impressed all
those involved was the unity among the
players in the highly competitive indexed
Eric Thomes, senior vice president of
sales at Allianz Life Insurance of North
America, said even a half a year after the
swirl of events that defeated 151A, a sense
of disbelief remains.
"I think a lot of people are still surprised
that we actually pulled together as
an industry and did that," Thomes said.
But the challenge remains to sell products
that were so thoroughly besmirched
by bad press and the financial industry.
In fact, even though it was a victory that
indexed annuities are still considered
insurance, this can also hinder a clear understanding of the product among
"People buy life insurance because if
they prematurely die there's a death benefit
for their beneficiaries," Thomes said.
"An annuity is just the opposite of that.
That is implying when you decide to turn
to income, it'll make sure you never outlive
your money. And by both expertise
and by law, a life insurance company is
the only financial institution that can
guarantee somebody they'll never outlive
their money. … We have to sell the
products for what they do and not necessarily
what they are.
Another post-151A challenge is
tougher suitability standards. The Harkin
Amendment required states that do not
want SEC regulation of indexed annuities
to adopt the National Association of
Insurance Commissioner (NAIC) model
regulation on indexed annuity sales. A
key requirement is for insurance companies
to verify that every transaction complies
with suitability standards.
Many companies and IMOs said they
already meet the NAIC requirements, but
some producers and carriers are nevertheless
concerned about the tighter
Michael Prestwich, president of Imagi-
SOFT, which sells annuity marketing and
suitability software, said the new suitability
laws are in some ways even tougher
than the oversight the SEC has on broker/
"The states, to maintain control, made
their laws that rigid," Prestwich said. "So,
before you send out a postcard, you have
to have it reviewed by the various companies
that you do business with. If you
have seminars, the seminars have to be
approved at the company level and registered
in most states. Again, if you're
working with 10 companies, somebody
at each company has to approve what you say and [you have to] basically keep
it extremely generic and not make any
Some companies are deciding they
don't want to take the risk in the independent
"Transamerica just recently decided
they weren't going to sell fixed annuities
anymore through their insurance brokers,"
Prestwich said. "They're going to
do it through the broker/dealers."
Some also believe another challenge
will be the source of funds issue,
which arises when money is taken from
a security and used to buy an insurance
Mike Walters, CEO of USA Financial,
said that source of funds is part of
a larger push for "a fiduciary blanket that
they'd like to throw across all licensure,
regardless of insurance securities, RIA or
The reasoning behind source of funds
is if a salesperson is only insurancelicensed
and is making an annuity sale
with funds coming out of a mutual fund,
then that salesperson must have given
advice on a product line for which the
salesperson wasn't licensed.
"It's a pretty hard argument to combat
because, quite honestly, that's what
took place," Walters said. He added that
he sees more insurance producers getting
a securities license to be able to talk about
"When we look at our broker/dealer,
87 percent of our registered reps have a
Series 7, yet we don't have a single stock
jock in the house," Walters said. "The reason
they have that license is essentially a
different version of source of funds. They
want to get access to those funds."
Even carriers that depend on the independent
insurance sales channel say that
although indexed annuities escaped the
clutches of the SEC, producers should seriously consider getting a securities
"I talk quite frequently to agents who
ask whether they should become registered
investment advisors," said Wendy
Waugaman, president and CEO of
American Equity. "My advice to them
is, this is where the industry is moving
and where regulation in general is moving,
to a system where there are fiduciary
duties of advisors and a more holistic
Another challenge that most people
at the NAFA summit identified is frozen
money. One reason people are not
moving their funds is interest rates,
which have been low for much longer
than many advisors expected, said Tony
Compton, president of Gradient Insurance
"We all can remember 12 to 18 months
ago, talking about how low interest rates
were and that they could only go one way,"
Compton said. "Well, we were wrong.
They could go two ways, and they continued
to go down. Now we have products
that have extremely low crediting rates,
whether it's a traditional product, a guaranteed-
rate annuity or an indexed annuity.
And when the final numbers come
out for 2010, you're going to see the index
annuity business a little flatter than what
you've seen in the past."
Another reason money is not moving
is because people are just plain scared.
Many advisors and IMOs pointed out
that trillions of dollars are sitting on the
sidelines. Compton said, indexed annuities
should resonate with those consumers
looking for security and some upside
"There's still a great marketplace for it
because you're not going to lose money-
that's the safety net and peace of mind-
and with the evolution of income riders
and death benefits, in my opinion,
there's not a better place for retirees to
have their money.
Others agree that a lot of retirees will
be looking for what annuities can do for
them. Compton said it's just a matter of
inflation and time.
"The boomer generation is coming
through," Compton said. "All of their
money is in 401(k)s, qualified plans and
the accumulation. They have to get out of the accumulation into distribution,
but when they go to the distribution
phase, they want to make sure they go
into a product that can still credit them
interest. So when interest rates come up,
you'll see a big jump."
Thomes of Allianz said that message
is not just for retirees looking for the
best distribution of funds, but for anyone
who even hopes to retire in the future.
"If you think about it, I think our average
issue age on an indexed annuity is in
the low 60s, but that number has been
coming down over the years," Thomes
said. "I always use an analogy: when my
father and my grandfather planned for
retirement, they planned for it in what
I call thirds. One third of their retirement
was going to come from Social
Security; one third was going to come
from their pension; and one third was
going to come from their own personal
savings. But I look at myself, and I go,
‘That formula just doesn't work.'"
Thomes sees a future without defined
benefit plans or even Social Security.
"If it's there when I retire, that's great,"
Thomes said. "But I guarantee it's not
going to be 33 percent of what I'm planning
to retire on. So what does that
mean? I don't know if the numbers now
are 10 percent/10 percent/80 percent or
20/20/60, but they're not one-third/onethird/
one-third. So, more of the onus of
my retirement is now on me. … One of
the things we've been talking about is
changing the lexicon around the word
annuities and thinking about it in the
terms of ‘retirement insurance' or ‘longevity
insurance' or ‘inflation insurance.'
When you think about a new employee
sitting down with a company, the benefits
people go through, ‘Here are your
health insurance benefits; here are your
401(k) benefits; here's your dental benefit.'
A natural transition would be, ‘What
are you doing for your retirement insurance?'"