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FMOs Retain Fixed Index Annuity Dominance by Launching Own Broker-Dealer


Field Marketing Organizations (FMOs,) also known as Independent Marketing Organizations (IMOs), are worried about the fixed indexed annuity requirements that come with the DOL’s new fiduciary rule. These types of organizations represent independent agents, a group that accounted for 60% of indexed annuity product sales in the first quarter of this year. The new rule requires a financial institution like an insurance company, broker-dealer, or bank to sign off on all commissioned fixed indexed annuity sales. FMOs are in trouble because they don’t qualify as a financial institution. The issuing insurance company would have to sign off on their independent agent sales of FIAs, something that insurers aren’t likely to do because they can’t monitor those practices well enough. There is another way that FMOs can deal with this new rule though. They can launch a broker-dealer that will serve as the required financial institution.

Annexus is a huge independent insurance product design and distribution company made up of 17 FMOs. They are already moving forward with launching their own broker-dealer, even before the DOL rule takes effect. This information comes from the Investment News article, “Indexed annuity distributors weigh launching B-Ds due to DOL fiduciary rule,” by Greg Iacurci. Industry expert Sheryl Moore says that we cannot overlook the significance of a large organization like Annexus taking this radical step in the industry. She points out that while some individual FMOs have a broker-dealer, Annexus is the first super FMO to make this move. Annexus’ COO believes that more independent organizations will be following their lead. Their fixed indexed annuity products have been sold by Nationwide and Athene USA. Annexus accounted for 7% of fixed indexed annuity sales in 2015 with $4 billion sold.

American Equity’s chief executive said that the company doesn’t know if they will continue selling fixed indexed annuities through the independent channel after the DOL rule goes into effect. They were the second highest sellers of indexed annuity products last year. The company says that the risk of vouching as the financial institution for these independent agents is too high because American Equity simply would not be able to monitor them. Many insurance companies feel this way, which is a big reason that Annexus is taking matters into their own hands and launching a broker-dealer. They certainly won’t be the only FMO or IMO to make this move.

There is still one other way that FMOs might be able to manage the new DOL fiduciary rule best interest contract exemption (BICE). They are able to apply for an individual exemption through the Department of Labor that would allow them to act as the financial institution, even if they do not have a broker-dealer. No one is sure what the requirements will be for the application to be accepted or how many organizations will receive the exemption. Annexus decided to get started with the broker-dealer process now because it can take a long time. Since it costs a lot of money, Ms. Moore doesn’t know how many other FMOs will be taking the same steps as Annexus, but she can see middle and lower level FMOs grouping together to form a larger organization that can establish a broker-dealer. Annexus will get other benefits from their broker-dealer status as well. They will now be able to market and distribute registered products.

Although some insurance companies say that they will act as the financial institution backing up independent organizations selling fixed indexed annuities, Sheryl Moore doesn’t foresee any insurers actually following through because of the huge risk. In order to maintain their share of fixed indexed annuity sales after the DOL rule, independent organizations like Annexus are launching their own broker-dealer.

Written by Rachel Summit

Follow Rachel, aka Finance Mama, on Twitter and Google+

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