How the Fiduciary Rule Creates Technology Opportunities in Annuities
I just returned from the IRI Operations and Technology Conference in New Orleans. Every year, the Insured Retirement Institute (IRIonline.org), the leading financial services trade association for the retirement income industry, convenes to discuss regulations and new developments that affect insured retirement savings. Some hard discussions were had last week in the Big Easy. The dominant focus of the conference was the looming deadline of the Department of Labor (DOL) Fiduciary Rule, which President Trump has delayed.
Investopedia explains the new Fiduciary Rule:
The Department of Labor’s definition of a fiduciary demands that advisors act in the best interests of their clients, and to put their clients' interests above their own. It leaves no room for advisors to conceal any potential conflict of interest, and states that all fees and commissions must be clearly disclosed in dollar form to clients. The definition has been expanded to include any professional making a recommendation or solicitation — and not simply giving ongoing advice. Previously, only advisors who were charging a fee for service, either hourly or as a percentage of account holdings, on retirement plans were considered fiduciaries.
Consumer Protection for Annuities
It is clear that the retirement income industry is supportive of any measures that will serve the best interest of consumers, but the lack of clarity on the timing and exact nature of the rule has many of the operations leaders for these organizations concerned.
One thing is certain, digital automation and technology standards are the critical path to turning these regulatory burdens into opportunities for differentiation and a redefining of the annuity sales process.
There is a strong recognition that the industry has a ways to go, to make it as easy to buy annuities as other investment and retirement products. Electronic signatures are an obvious, proven technology that have delivered impressive benefits to carriers and distributors alike – cutting NIGOs by 75%, saving advisors 2-3 hours per week, and reducing hard costs from $7-$10 on each transaction.
So why is e-signature adoption still so limited within this product segment, especially compared to other financial services? This was the focus of my session on Day 2 of the conference.
One reason for this, I believe, is the ongoing confusion around where and how electronic signatures can be used, what standards need to be met, and who (the carrier or the broker dealer) needs to lead the implementation.
The priority e-signature use case for most has been new business transactions. When examined from this lens, broker dealers at the point of sale clearly need to be the champions for digital transformation. Yet fewer beyond the top tier distributors have actually implemented.
Unfortunately, these critical stakeholders were under-represented at the conference. Based on our discussions with broker dealers we know two key concerns that are still holding some back:
- Uncertainty over carrier acceptance
- Reluctance to adopt multiple new business workflows or multiple e-signature processes
Digitize to simplify
The digital process needs to be as easy or easier than the paper process. That means seamless integration with the advisor desktops they are working in today. Luckily, the integrations between best-in-class, enterprise e-signature solutions like eSignLive and the order entry platforms like AnnuityNet, iPipeline, and RetireUpPro are available and mature.
Annuity product manufacturers on their part can also help by publishing and promoting their policies on e-signatures to their distribution community, as well as ‘practicing what they preach’. They can demonstrate technology leadership by adopting e-signatures for their captive distribution channels (where appropriate) and for policy delivery and post-sale processes.
Policy changes remove barriers
As the IRI continues to work towards removing real and perceived barriers to use, it was announced that revised and simplified e-signature standards had just been ratified. These standards remove some of the previous workflow requirements that caused a less than ideal experience for advisors and signers – namely the need to send out an email invitation to signers even when the transaction was taking place in-person. New standards now align with industry best practice user experience for e-sign transactions, while maintaining the reliability and security of the process.
The new e-signature standards, combined with the increasing regulatory pressure might just be the catalyst needed to finally bring this industry into the digital age.