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Industry Braces for Fiduciary Rule, Firms Set Annuity Commission Rates


A new report from industry consultants, Kehrer Bielan Research & Consulting, predicts that banks and credit unions will likely establish commission rates on fixed-rate annuity sales around 3% once the DOL’s fiduciary rule is fully implemented. According to a recent article from Bank Investment Consultant, researchers surveyed 18 banks and third-party broker dealers to determine how institutions are planning to adapt pricing options to comply with the new rules. Expectations for future fixed-rate annuity commissions ranged from 2.5% to 5%, but most hovered between 3% and 3.4%.

In 2015, before the Department of Labor’s new fiduciary rule was on the horizon, the median commission rate was 3.77% Historically,they have been much higher, reported Kehrer Bielan. As firms prepare for future regulations, they are taking one of two general approaches. About 55% of those surveyed are planning to offer uniform product menus for both retail investment and retirement accounts ,while another 40% is planning to develop separate product menus.

For those planning to offer different menus, the commission expectations for fixed-rate annuities for retirement accounts is slightly lower, ranging from 2.5% to 4.3%. This is compared to the 3% to 5% for the firms with a “one-size-fits-all” approach.  A significant 73% of those planning a unified product menu said they expect to receive the same sales commission for each fixed-rate annuity and 55% would allow advisers to choose among different up-front and trail commission options.

In terms of product offerings, the firms with separate menus were unclear about which options they would provide, with 13% undecided about fixed annuity availability in retirement accounts at all.

“If you’re going the separate product menu route there’s a lot more to figure out, and so it’s taking these firms a little more time to work through the process,” said Tim Kehrer, senior research analyst at Kehrer Bielan. He added that he was surprised by the number of firms planning to have separate product menus. “It’s potentially awkward for a firm to tell a client that the adviser is operating in your best interest within this one account but not in this other account,” he added.

Kehrer explained that firms may be trying to minimize the amount of disruption to their business by opting to go with separate product menus. This way, they can spare their retail investment clients from the disturbance that retirement accounts would experience from changes to adviser compensation and tightened disclosure requirements.

This plan of attack would mean that for retail investment accounts, “life would go on as it did pre-DOL,” a plus for firms that are worried about losing advisers who are disgruntled over pay plan changes, Kehrer said. “Firms are looking to minimize how much they have to change.”

Written by Rachel Summit

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