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Issue for August 11, 2017

Great American Inks Annuity Distribution Pact with Top RIA

By Warren S. Hersch August 11, 2017

One measure of the rise in demand for fee-based fixed indexed annuities is the burgeoning roster of products. Another is the expanding number of distributors for the new FIA offerings.

Ratchet up the latter a notch. Great American has begun offering its Index Protector 7 FIA on Brookstone Capital Management’s web platform for registered investment advisors.

The addition brings to 50-plus the number of RIA firms offering Great American’s fee-based annuity. The Cincinnati-based company’s largest RIA distribution partners (in terms of assets under management) include Dynasty Financial, Commonwealth Financial, HighTower, Raymond James and United Capital.

Brookstone, which does business through 350-plus investment advisor reps (IARs), is a prized partner for Great American. In 2016, the Financial Times named the Wheaton, Ill.-based company to the FT 300 Top Registered Investment Advisers list for the third year running. FT based the designation on, among other criteria, Brookstone’s AUM (now $2 billion-plus), AUM growth rate, years in existence and stellar compliance record.

“These [accomplishments] were one reason for partnering with Brookstone,” says Tony Compton, a VP of broker-dealer sales at Great-American. "Another was the company’s investment philosophy, which values fixed indexed annuities as part of a well-rounded portfolio. We didn’t have to teach them how annuities work; they were already comfortable with the products.”

Tony Compton, VP of broker-dealer sales at Great American.

Other life-annuity carriers that have rolled out fee-based fixed indexed annuities during the year past — Allianz Life, Lincoln Financial, Pacific Life and Voya Financial — also are seeking RIAs partners to expand distribution of the new offerings. In the variable annuity space, Ameritas and Great-West unveiled agreements with RetireOne in June and July, respectively, to distribute their VA products.

Brookstone’s platform offers, among other third-party data aggregators, access to EnvestNet Advisor Suite, a web portal providing institutional research, investment products and advisory resources. The site is a must for RIAs needing to report on fixed indexed annuity account values and performance and to share this data with clients, Compton says. Further, Great American is wholesaling Index Protector 7 to Brookstone and other RIA partners through affiliated independent marketing organizations, Compton adds.

(Citing confidentiality agreements, Great American declined to name these IMOs. Collectively, the IMOs interface with “thousands” of RIAs, though, Compton notes not all are currently licensed to sell Great American products.)

With the initial phase of the Department of Labor fiduciary rule in effect, Compton expects that distribution through fee-based advisors will grow — including financial professionals transitioning from commission-based compensation. Top of mind for them is compliance with the rule’s Best Interest Contract Exemption or BICE, a streamlined version of which, available for level-fee advisors, carries fewer documentation and disclosure requirements.

(As reported, the DOL is now seeking an extension of the rule’s implementation of the BICE and other components of the rule from January 1, 2018 to July 1, 2019.)

But Compton emphasizes that the DOL rule was not the primary driver in Great American’s decision two years ago to add RIAs as a key distribution channel by offering fee-based versions of its annuity products.

“We realized there was a unique opportunity to drop the sales commission — and thus increase earnings potential for the client by giving them higher caps and participation rates on our fixed-indexed products — while allowing investment advisor to charge a fee,” says Compton. “The decision was a no-brainer. The DOL rule, which has accelerated a push already underway among advisors to go-fee based, was just the cherry on top.”

Debuted in August 2016, Index Protector 7 lets RIAs tie the fixed indexed product’s account value to assets under management and, thereby, charge an AUM-based fee in client billing statements. Whereas the commission-based version comes with a 5.15% cap (annual maximum percentage increase), the fee version boasts 7%. The difference in participation rates (percentage increase in the index by which the contract value will grow) is also significant: 65% versus 95%, respectively.

For an additional 50 basis points, Index Protector 7 also boasts an optional rider, Income Keeper, that guarantees an income stream for life. Should the annuitant die before taking income, charges assessed for the rider are refunded.

“Over the next 5 years, we'll be creating new opportunities for RIAs to generate guaranteed retirement income for clients,” says Compton. “GMIBs [guaranteed minimum income benefits] will become a bigger component of the investment advisory business.”

Additional features of the contract include a return of premium after the 3rd contract year, a 7-year surrender charge schedule and 10% penalty-free withdrawals. The product requires a minimum $100,000 investment.

A division of American Financial Group (AFG), Great American generates about 95% of statutory annuity premiums through a retail distribution channel of 5,000-plus independent agents/brokers and some 35 financial institutions, according to the company’s 2016 annual report. Citing LIMRA statistics, the report adds that AFG “ranked first” in FIA sales and 8th in sales of all fixed annuities sold through financial institutions, including RIAs.

The report attributes the 7% growth in annuity premiums last year — statutory annuity premiums in 2016 attained $4.4 billion, a record for the multiline carrier — to “new products, additional staffing and increased market share” among partnering financial institutions. Collectively, these FIs account for 55% of the AFG division’s annuity premiums.

AFG and its Great American member companies (including units offering P&C and specialty insurance) collectively accounted in 2016 for an additional $6 billion in written premiums and field about 7,600 employees across 120 offices worldwide. AFG’s assets in 2016 totaled nearly $55.1 billion, up from $49.8 billion in 2015.

A family-run operation, AFG is principally owned and operated by co-CEOs Carl Lindner III and S. Craig Lindner, the sons of financier Carl Lindner Jr. The father founded American Financial in 1959 and was the company’s chairman until his passing in 2011.

How Nationwide, Transamerica Bring AI to Customer Service

By Emily Holbrook August 11, 2017

An estimated 30% to 50% of human call center tasks can be streamlined with artificial intelligence (AI) technology, and nearly 80% of businesses are planning to adopt AI as a customer service solution by 2020. That’s according to the “2017 Customer Service Trends” report from Jacobson, an insurance recruitment agency.

Though AI’s initial impact primarily relates to improving inefficiencies and automating existing customer-facing, underwriting and claims processes, its impact will be more profound. According to a 2016 report on AI in insurance from PwC, the technology will identify, assess, and underwrite emerging risks and identify new revenue sources.

While some consider insurance the least innovative of all industries, the use of AI in insurance claims, sales and customer service might just squash that label.

Some carriers have been using AI in the claims process for years, but AI in sales and customer service has remained on the backburner. Nationwide and Transamerica are looking to buck that trend, however.

Nationwide is making strong strides on this front.

Within the company’s Guaranteed Retirement Income from Nationwide (GRIN) program, the carrier is implementing AI chat functionality to handle customer requests.

“Our analytics and customer research — during the first phase of the pilot — have shown us that we have a simple, understandable product and process but that some customers need ‘decision support’ throughout the process,” said Jean Finnegan, associate vice president of innovation and competitive intelligence at Nationwide. “We have phone support available but some of our target market, like Gen Xer’s, prefers chat over phone. AI chat will be launched during phase two of the project in September.”

Finnegan says that Nationwide believes advances in AI have created better tools that enable companies in all industries to interact with customers in new and engaging ways. Retailers, for example, are already utilizing AI for customer service and Finnegan sees “insurer customer service as a logical extension – especially as the tools improve.”

Meanwhile, Transamerica has recently implemented voice biometrics technology, called Transamerica Voice Pass. Customers calling the carrier’s customer care service centers will be able to more easily and securely authenticate and access their accounts while also identifying the reason for their call, simply by speaking. Voice Pass verifies the customer’s voice against his or her unique voiceprint on file and, if matched, access is granted. Voice biometrics analyzes more than 100 physical and behavioral voice characteristics to identify and verify an individual by their unique voiceprint.

The Transamerica Pyramid

While effective in reducing acts of fraud, voice biometrics is also 80% faster to authenticate compared to PINs, passwords and security questions. The insurer is the first company in the U.S. to launch an interactive voice response experience that combines voice biometrics technology and natural language. Once a customer is enrolled in the optional service, Transamerica says there will no longer be a need for additional passwords, PINs, security questions or subsequent calls.

Transamerica has also built CLV (customer lifetime value) and segmentation models utilizing machine learning to gain customer insights and identify potential sales opportunities, while using multiple sources of internal and external data that are ingested into a big data platform to provide customer scoring and segmentation. Other potential AI applications the company is exploring include fraud protection (insurance claims, agent fraud, disbursement fraud), enhanced underwriting and additional customer engagement.

John Hancock IPO Talk Is Just Speculation: Manulife CFO

August 11, 2017

Talk of Canada’s Manulife Financial spinning off its U.S. business John Hancock is just that — talk, Manulife’s CFO tells Reuters.

Analysts and the media have said that under the firm’s incoming CEO Roy Gori, Manulife could unload its U.S. assets to focus on Asia, where Gori “has deep roots,” Toronto-based Business News Network wrote on its website last week. Gori takes over as CEO on Oct. 1.

But that’s “all market rumour and speculation as far as I'm concerned," Steve Roder, Manulife’s CFO, tells Reuters. And Manulife’s outgoing CEO Donald Guloien tells the newswire that any spin-off decision would rest on what the deal would bring in terms of shareholder value. On the other hand, Gori tells Reuters that Manulife "has some challenging blocks of legacy business.”

John Hancock Tower in Boston

On a call with analysts Thursday after the second quarter earnings release, Guloien also stressed Manulife’s commitment to a presence in the U.S. market, Ignites, a Life Annuity Specialist sister publication, reported. "The U.S. market is the biggest investment market in the world," he said, according to an Ignites article. "I can’t see a time when Manulife would not be offering U.S. products in its offering, and wealth management/asset management will obviously be a big part of that."

It remains unclear how much cash the sale of John Hancock would free up for Manulife, according to BNN. Paul Holden, an analyst with the Canadian Imperial Bank of Commerce, tells the TV channel that John Hancock’s valuation as an independent firm could be between $9 billion and $10.5 billion. But because the firm’s balance sheet is evaluated using Canadian accounting methods, which are “markedly different” from U.S. accounting standards, it could be difficult to compare John Hancock’s valuation to that of its U.S. peers, Holden tells BNN.

An IPO spinoff would be a rare vote of no confidence in the North American market as it would be the first instance of a major insurance firm unloading a U.S. financial services operation with multiple products. Unlike in MetLife’s planned spinoff of its life insurance and annuities business, John Hancock’s business includes not just insurance but also wealth management, retirement planning and asset management.

Meanwhile, it’s also unclear how Manulife would use the money from the spinoff, BNN writes. Gori had headed retail and consumer banking in Asia Pacific for Citigroup, so the freed-up funds could be used to sell new products to the masses, according to the TV channel.

According to The Global and Mail, Manulife exceeded performance targets for the second quarter. Canada’s largest life insurer announced core earnings of $1.17 billion, or 57 cents per share, for the reporting period. This was higher than the Q2 2016’s performance of 40 cents a share, and analysts forecasts of 55 cents per share.

In Manulife’s 2016 annual report, the insurer reported that insurance premiums and deposits totaled $26.4 billion, up from $23.2 billion in 2015. The report fails to separately break out premiums or earnings for John Hancock.

By Alex Padalka
  • To read the Reuters article cited in this story, go to
  • To read the Reuters article cited in this story, go to
  • To read the BNN article cited in this story, go to
  • To read the Ignites article cited in this story, go to if you have a paid subscription.

Long DOL Rule Delay Hints at Revisions: Lawyers

August 11, 2017

The Department of Labor’s further 18-month delay in enforcing major components of its fiduciary rule hints that the agency is planning substantial changes to the regulation, industry lawyers say.

On Wednesday the DOL filed a notice of the pending delay in a lawsuit it is fighting brought by Thrivent Financial. Earlier that day, the agency filed proposed amendments with the Office of Management and Budget, court documents indicate, affecting the applicability dates of the Best Interest Contract Exemption and other exemptions that accompany the department’s fiduciary rule.

The contract requirements of the BIC exemption, which would apply to commission-based financial professionals serving IRA clients, were originally set to become effective in April, though the DOL pushed that date to Jan. 1, 2018, at the behest of President Donald Trump. The new delay pushes the applicability date much further out, to July 1, 2019.

“I’m a little surprised they are proposing such a long extension, but I guess they realize that it will take quite a bit of time to assess how to revise the rules, get them drafted and vetted internally and at OMB, get them published for comment, assess the comments and then finalize the new guidance,” says Bruce Ashton, partner at Drinker Biddle, in an e-mail. “Also, they may be anticipating allowing for time for the industry to make changes to accommodate the new rules once they are finalized.”

The text of the DOL’s proposed revisions was not immediately available, though the OMB noted Thursday on its site that it has received the submission. The proposal could include the same terms that the agency used in the current delay, or “transition period.” In such an instance, portions of the rule and BIC exemption, including the current impartial conduct standard, remain in effect, though specific items, such as the contract requirement, are not, said Ropes & Gray associate Josh Lichtenstein, in a statement.

“If this proposed delay takes effect then the DOL will have greater freedom to alter the requirements of the Best Interest Contract Exemption or to create new, streamlined exemptions before the new July 1, 2019 effective date,” Lichtenstein said. “This proposed delay could be seen, in part, as an attempt to avoid having financial institutions make further changes to their practices before the DOL makes final decisions on what the rule and the related exemptions will look like.”

Many in the financial services industry are likely relieved by the delay, Ashton notes.

“They’ll keep doing what they are doing to come into compliance, but I think they will relax a bit and feel like they have been given a bit of a reprieve to do things thoughtfully and thoroughly without the rush,” he says.

The proposed delay follows the agency’s deadline for comment Monday regarding numerous questions it posed regarding the rule and its exemptions.

Several fund providers, recordkeepers and broker-dealers submitted comments, many of which echoed prior letters sent to the DOL that were critical of major provisions of the rule.

Among those commenting was Raymond James CEO Paul Reilly, who noted that “operational and IT changes to comply with the BIC and other exemptions as written are estimated to take at least two and a half years to complete, and cost tens of millions of dollars in addition to the millions that have already been spent.”

In an earnings call in June 2016, Reilly expressed optimism that the company would be able to comply with the rule’s provision, and had “plenty of time” to meet the original April 2017 deadline, though he also said at the time that it was unclear how the firm would do so, in part because of a lack of DOL guidance.

Like others, Reilly said there seems to be early evidence that small-balance IRA investors and small businesses have seen reduced access to retirement advice.

However, Reilly noted that hints in recent DOL guidance that suggested a preference for clean shares as an alternative to T shares could have unfavorable consequences.

“By citing products that may qualify for a streamlined exemption, the department will potentially usurp judgment of clients and their advisors to choose products that best fit client needs,” he stated in the letter. “We see client choices being more limited with additional costs being added.”

The letter went on to express skepticism about manufacturers’ interest in developing such products and indicates Raymond James is not interested in using them.

In another letter, Empower Retirement president Edmund Murphy proposed eliminating the contract requirement, or the “C” of BIC exemption.

“The effect of this provision is to support and encourage private litigation as an enforcement mechanism,” Murphy wrote. “A recent study suggests there are significant negative impacts of increased Erisa litigation settlements on fiduciary decision making.” The study referred to is Cerulli’s U.S. Retirement Markets 2016.

Further, the DOL should consider changes to the definition of advice, some of which has added confusion to the recordkeeping business, he wrote.

“Under this definition, casual suggestions regarding investments or distributions that are clearly not intended to be relied upon as advice could be deemed a fiduciary act,” he wrote. “We have hundreds of employees engaged in these communications. It is very difficult under the current definition to provide meaningful help without risking fiduciary status, even with extensive scripting, training and monitoring.”

Another firm, MFS, also provided answers to the DOL’s list of questions, though it began its letter noting that “the best course of action is rescission of the rule.”

In a separate letter, Voya was critical of the DOL's “largely relying on the court system to define the contours of the standard through litigation, and, by prohibiting waivers of class actions in the BIC contract, invites enterprising private law firms to bring costly lawsuits against providers of retirement advice.”

Vanguard emphasized points it has repeatedly made to the DOL in prior letters, though the firm noted that it supports the current impartial conduct standard that the agency has implemented during the transition period. However, advice should not include recommendations to increase retirement savings or to modify an investor’s “extreme allocations,” the firm noted.

Like many others, Vanguard encouraged the DOL to coordinate changes to the rule with the SEC. The latter agency has begun collecting public comments on a potential rule of its own, though it is unclear when and whether it will craft one.

Writing in support of the DOL’s rule was William Galvin, the top securities regulator for Massachusetts. Galvin dedicated his letter to criticism of “erroneous and dangerous assertions about the fiduciary rule” made by SEC commissioner Michael Piwowar, who has long been critical of the DOL’s efforts.

“The adoption of the fiduciary rule represents a clear victory for retail investors and retirement savers,” Galvin wrote. “In view of the protections the rule will provide, it is shocking and sad that an SEC commissioner would use the platform of his office to oppose it.”

ACLI Draws Ire of Consumer Groups over Annuity Sales Standard

August 11, 2017

More than a dozen consumer groups have slammed the American Council of Life Insurers’ proposal on managing conflicts of interest in annuity sales, InvestmentNews writes.

In April, the National Association of Insurance Commissioners began a review of its suitability standard in regard to annuity sales ahead of the Department of Labor’s fiduciary rule. The first phase of the rule went into effect June 9 and in part targets inappropriate sales of annuities, the publication writes.

The ACLI has since proposed a “uniform standard of care” that could be enforced by the SEC, the DOL and state regulators. But consumer groups say the proposal is too broadly worded to be effective, according to InvestmentNews.

ACLI proposes that insurance brokers and reps be considered as acting in the best interest of consumers if they disclose all their fees and compensation, steer clear of misleading statements and avoid, disclose or “reasonably” manage “material conflicts of interest,” according to the publication. In a letter to the NAIC, 14 consumer groups, including the AFL-CIO, the Center for Economic Justice and the Consumer Federation of America, write that the proposal gives too much leeway to companies in how they disclose, manage and avoid conflicts, according to InvestmentNews.

The letter, which was also signed by 10 NAIC consumer representatives, indicates that such an approach would lead to firms addressing potential conflicts of interest only through disclosure, the publication writes. Meanwhile, the letter claims, “overwhelming evidence” points to the ineffectiveness of disclosure alone in shielding consumers from conflicts, InvestmentNews writes.

Instead, the consumer groups are urging the NAIC to opt for "substantive prohibitions on conflicts of interest, as opposed to 'managing' or 'disclosing'" them, according to the publication.

By Alex Padalka
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Fiduciary Rule Remains at Top of Lobbyists' Hit List

August 11, 2017

Lobbyists pressed lawmakers on the fiduciary rule more than on any other retirement policy initiative in the second quarter of 2017, reports Bloomberg BNA.

In total, retirement-industry lobbyists spent $7.7 million attempting to advance their causes in the second quarter of 2017, 15% less than the prior quarter. By comparison, the lobby spent $9.5 million in the second quarter of 2016, according to Bloomberg Government data cited by the outlet.

Between April 1 and June 30, 56 organizations listed the fiduciary rule as a “specific lobbying issue” on reports disclosing their lobbying activities — more than any other retirement topic, according to Bloomberg BNA. Multi-employer pension plans, tax issues and state retirement plans followed at 47, 40 and 23, respectively. Organizations could name more than one issue in a report.

The majority of institutions lobbying in regard to the fiduciary rule oppose it, Bloomberg BNA notes. Among those that funneled money to that cause in the second quarter were BlackRock, Morgan Stanley and Vanguard.

New York Life and Prudential both lobbied on potential tax reforms, including the current tax-deferred treatment of 401(k)s and IRAs, which Congress has often considered cutting, Bloomberg BNA notes.

Groups lobbying in regard to state-run retirement plans for private sector workers included LPL Financial, TIAA and Voya, according to Bloomberg BNA. In May, President Donald Trump signed a repeal passed by Congress of an Obama-era rule that exempted government-run retirement plans from complying with Erisa. However, a handful of states have announced that they intend to proceed with implementing automatic IRA programs regardless, as reported.

By Jill Gregorie
  • To read the Bloomberg BNA article cited in this story, go to