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How and Why Annuities Sales Soared After Death of the DOL’s Fiduciary Rule

By Alex Padalka October 29, 2018

Annuities, often derided by consumer advocates for their high commissions and sales incentives to financial advisors, have had a surge in sales following the demise of the Department of Labor’s fiduciary rule, the Wall Street Journal writes.

From April to June, sales in annuities totaled $59.5 billion, the highest sine late 2015, according to data from the Limra Secure Retirement Institute cited by the paper. Annuity sales had been in decline since early 2016, following the DOL’s unveiling of the proposed rule that purported to require retirement account advisors to put clients’ interests first, according to Limra data cited by the Journal.

Annuities have been slammed for doing the opposite by lawmakers such as Sen. Elizabeth Warren, D-Mass., who took issue with sales incentives such as paid vacations to agents peddling them, the paper writes.

Agents receive an average 6% in commissions on certain types of annuities, according to the Journal, which cites Wink Inc., an industry market-research firm.

Investors, meanwhile, can be slapped with heavy penalties if they withdraw money from an annuity before it matures, the paper writes.

The DOL’s rule would have forced brokers to disclose their commissions and would have banned them from investing client money in high-fee annuities if lower-fee ones were available, according to the Journal. But shortly after becoming president, Donald Trump ordered the DOL to review the rule in early in 2017, which led to a small bump in annuity sales, followed by a decline in the third quarter, as the rule went into partial effect, according to Limra data cited by the paper.

Annuity sales have been rising ever since, receiving a big boost in particular in the second quarter this year, according to Limra. The Fifth Circuit Court of Appeals vacated the rule in March and confirmed its decision in June.

Hiring in the annuities market has also picked up, with the number of open annuities specialist positions on employment site Indeed.com soaring 29% in the six months since March, according to the Journal. Lawyers and investor advocates say aggressive sales of annuities are back, the paper writes.

“The door has opened for bad brokers to have more free rein with these things,” Michael Lynch, an attorney in Winter Park, Fla., tells the Journal.