As a broker dealer and owner of a BGA, I have been closely following the debate surrounding Regulation 151A. For those who are not familiar with the topic, Regulation 151A would place Fixed Indexed Annuities sales under the control of FINRA/SEC. Like many professionals who come from insurance backgrounds, I believe that Fixed Index Annuities can be considered insurance products.
The implementation of 151A marks the end of the status-quo for agents or BGAs. Fixed Index Annuities are now registered products. To sell indexed annuities, agents will need to be licensed in series 6 or 7. They must also be registered with a broker dealer. BGAs must register as brokers dealers or affiliates with a BD to be eligible for compensation for wholesale services. All parties must be licensed, affiliates with broker dealers, or exit the company.
Many agents have dropped their securities licenses over the years to avoid BD haircuts or compliance departments. Many agents who sell indexed annuities are not securities licensed. Those agents will need to be licensed and affiliated with a BD, or they will have the option of stopping selling indexed annuities.
Who will you turn to for your agents? Do you have the infrastructure to handle them in this new regulatory environment? Are there broker dealers you can trust with your agents? What broker dealers will allow agents to work with you again? What broker dealers will require your agents to start placing business with the broker dealer’s insurance agency?
We must resist the temptation to wish away our problems as FMOs and BGAs. We must create a plan. Leaders are essential. There are only a few options. You can either choose to leave the indexed annuity company and focus your efforts on other products. You can also choose to become your own broker dealer. I am happy to give you my guidance if you’re interested in this route but it is best to get moving quickly. A third option is to form a strategic alliance with a BD and become an affiliate.
For the vast majority of FMOs and BGAs, a strategic alliance is the best choice. This option raises more questions than answers for most. What will my payment be? Can I only work with one broker dealer’s agents? My partner and I created Centerre Capital as a “wholesale broker dealer” to serve FMOs and BGAs in this scenario.
The dynamics of getting paid, regardless of which BD you choose will remain the same. The transaction will be paid to both the BGA as well as the agent. Each party must be associated with a broker agent. Each party will pay a percentage of the payment to the carrier, and retain a portion for services rendered.
Important to note that the arrangement does not require the parties to be associated with the exact same BD. Compensation for indexed annuities will come from the insurance company to the broker dealer. The BGA may still be paid for “wholesaling” fixed indexed annuities. The wholesale override that is normally paid to BGAs will be paid to the BD of BGA. If the agent’s BD doesn’t require otherwise, the agent can still work with any FMO or BGA that he or she wishes. The transaction would be identical for the agent to any mutual fund or variable annuity trade. The agent’s broker dealer would supervise the transaction and pay it.
You should not be looking for a broker dealer if you don’t plan to make major changes in your business or start your own BD. There are more important considerations than just compensation. Is the broker dealer knowledgeable about insurance? Does the broker dealer understand your business model? Is it a good cultural fit? Your broker dealer selection is one of the most crucial business decisions you will ever make. You must make the right choice.