Independent RIAs, Clients' Annuities and Fiduciary Control

The growth of the fee-based advice model has led to a sea change in how financial advisors do business.

It's no longer enough to possess working knowledge of stocks, bonds, and relationship-building skills.

Today, there is more pressure on advisors to justify their fees by demonstrating value for clients, which goes beyond asset allocation and portfolio management.

Holistic, long-term financial planning offers an opportunity to create portfolios with investment products and strategies that can help clients and their families secure their financial futures.

And in recent years, fee-based annuities have become much more accessible to the independent advisory channel — enabling advisors to differentiate themselves for clients by consolidating held-away assets into their portfolios and growing their practice assets under management.

The Guaranteed Income Opportunity

Annuities can offer individuals guaranteed income over the long term — and provide defined outcomes — to help them save more for retirement, which benefits them and their families.

Understandably, these products continue to increase in popularity among retirement-savers.

According to LIMRA, sales of annuities reached $254.6 billion in 2021, a 16% year-over-year increase.

Also, in 2021, annual and fourth-quarter sales of registered index-linked annuities, known for providing income protection and growth, reached all-time highs.

The demand for annuity products presents a tremendous opportunity for independent RIAs to deliver greater value for their clients by helping them find the right annuities to meet their goals.

However, if RIAs do not hold insurance licenses, or affiliations with broker-dealers, recommending and purchasing annuities can be challenging and risky.

Unlicensed, fee-based financial professionals have historically had to outsource the recommendation and transaction of annuities and life insurance to third parties, requiring them to give up control and management of client assets to those partners acting as fiduciaries for those assets.

The Fiduciary Control Challenge

In today's marketplace, modern technology has created another option for RIAs without insurance licenses or broker-dealer affiliations to partner with others to recommend and transact annuities while maintaining fiduciary control over the assets.

RIAs and fee-based financial professionals can work with an outsourced insurance desk, or OID, to simplify and streamline annuity due diligence, selection, transaction, and management workflows while keeping fiduciary control over the assets.

After an advisor identifies the type of annuity that could help their client achieve their goals, they can submit a proposal request to an OID, whose licensed insurance agents can review and then make recommendations based on the information they receive.

Once the advisor obtains the client's approval of the recommended annuity, the OID can write up the contract as the agent of record for the annuity.

Also, as part of its responsibility as the agent of record, the OID can complete the application and submit it online to the respective broker-dealer and insurance carrier via a digital process which significantly reduces the risk of the application being designated "Not in Good Order," or NiGO.

The OID can then use e-Signature tools to send the client an email prompting them to electronically sign the application.

Once the application is signed, the OID, as the agent of record, can send the client the fully executed and signed annuity contract.

Technology developments in recent years can allow OIDs selected by advisors to integrate within their systems, enabling advisors to retain control over their clients' annuity assets.

OID partnerships allow advisors to make changes to annuity asset allocations and beneficiaries, as well as add premiums — and also run integrated allocation reports which include annuity assets as part of their overall assets under management.

Partnering with an effective OID can enable advisors to provide annuities for helping their clients save more for retirement, while ensuring they can maintain control over more assets under management and laying the groundwork for scalable growth.

Scott Bowers is chief strategy and distribution officer of Fiduciary Exchange (FIDx), an outsourced insurance desk services provider.