In Profile

A Conversation with Carolyn Johnson

Holistic Planning

by P.E. Kelley

Mr. Kelley is managing editor of this magazine. Connect with him by e-mail:

Marking the advent of new definitions of an advisor’s responsibility in today’s planning market, the DOL’s fiduciary ruling challenges the entire industry to clarify its rulebook for approaching, and advising, its client base.

And the debate over the degree of fiduciary responsibility to be attached to those providing investment advice to retirement savers has been contentious to say the least. For many companies, its time to circle the wagons and review how their sles force will ultimately comply with the new fiduciary realities.

We spoke with Carolyn Johnson, CEO of Annuities and Individual Life for Voya, about the impact of these broader definitions, and how they might impact her company, both in the immediate and for the long term. In effect, she said, the DOL ruling actually aligns with an emerging trend toward holistic planning.

PEK: How does the ‘broader definition of fiduciary’, now encompassing all fee-based activity, impact Voya and its advisor base?
CJ: The impacts to Voya, as a product manufacturer, have been relatively minimal to date. We have worked with our distributors to make changes they deemed necessary in order to comply with the rule. These changes have been mainly compensation adjustments and additional information feeds.

Our affiliated retail broker-dealer, Voya Financial Advisors, has also changed the review of its representatives’ sales under the rule. The determination of best interest is a different standard than the traditional suitability standard. In many ways, best interest is still an emerging standard that will likely evolve over time, due to regulatory and legal actions.

PEK: What now happens if a fee-based advisor sells a commission based product, such as life insurance? Is there a conflict of interest under the new rule?
A fee-based advisor can sell a commission-based product. However, the DOL takes the position that commissions — because they are paid by a third party — are a conflict.  Accordingly, the fee-based advisor would need an exemption to sell a commission-based product into a retirement account in the same manner a commission-based agent does (meaning PTE 84-24 or BICE, most likely).

PEK: Over all, how do you see advisors adapting to the new definition of fiduciary? What are the obstacles?
CJ: There has been a growing movement toward providing holistic financial planning over the past several years. The movement to a formal fiduciary standard aligns with that direction. You will see the acceleration of the adoption of financial planning tools and advisory-based platforms, as they are seen as additional ways to align with a fiduciary standard. Annuity and life insurance products will continue to be important tools for the advisor committed to comprehensive planning.

Potential obstacles are the advisory licensing requirements, gaining the necessary advisory platform knowledge and commensurate adjustments in the sales process.

PEK: How do the new rule-exemptions (PTE & BIC) immediately impact advisors currently selling annuities?
CJ: Agents and registered reps / advisors are now required to determine if the product being offered is in the client’s best interest. This is not an entirely clear standard today and will likely look different at various distributors. It’s intended to be an individualized determination, and not a blanket approval of certain products types for investors in the way suitability has been determined in the past.

The impact to Voya as a product manufacturer has been minimal so far.  Starting June 9, 2017, both existing PTE 84-24 and the new Best Interest Contract exemption covered sales by distributors of our Annuity products that are funded by qualified money.

PEK: How, if at all, has the new rule affected Voya’s plans for product development?
We have been active in developing products over the past few years. In fact, nearly 100% of our annuity sales are now coming from newly developed products with improved capital efficiency — compared with about 60% in 2015 and 40% in 2014. So, in preparation for the DOL’s fiduciary rule implementation, we asked our product group to build new products for the advisory market. We have two new products that are soon to be launched: Voya Select Advantage Advisory IRA and an advisory version of our Voya Journey Index Annuity.

There has been a growing movement toward providing holistic financial planning over the past several years. The movement to a formal fiduciary standard aligns with that direction

Voya Select Advantage Advisory IRA is a mutual fund custodial account. One of its key features includes its breadth of choice — customers can work with their advisor to select from a diverse mix of 90 individual mutual funds. This provides access to well-known fund managers and the opportunity to select from a diversified mix of management styles. Additionally, advisors are free to change their client’s investment options at any time, with no transaction charges. At the same time, the lower cost structure compared to other IRA platforms helps maximize the potential to grow retirement savings.

We currently offer a commissioned-based version of Voya’s Select Advantage IRA. In an effort to proactively adapt to the DOL’s new fiduciary rule, we designed an advisory version to give advisors more choice and options when working with their clients. This is the first time Voya has introduced an advisory model to its mutual fund portfolio, and it will launch in late August. In addition to other firms, our affiliated retail broker-dealer, Voya Financial Advisors, will offer this platform to its U.S. network of more than 2,000 independent financial advisors

Earlier this year, we launched a commissioned-based version of our Voya Journey Index Annuity. It’s is a single-premium deferred fixed index annuity that offers individuals full participation in the growth, if any, of one or more dynamic indices over a seven-year period. It was developed specifically to compete in the bank channel, providing a good alternative to bank CDs or market-linked CDs, since consumers can potentially earn a better return. We’re planning to debut an advisory version of our Journey FIA product by the end of the year.

PEK: What is the value of structured products like ‘buffer annuities’ in today’s market? How is Voya responding to this need?
CJ: So-called “buffer annuities” are growing fast in the market place, and we’re getting regular requests from our distribution to re-enter the market with this type of structured product. Therefore, we’re planning to introduce a new solution in the beginning of 2018.

In terms of their value, buffer annuities are essentially variable annuities, but they have some features of a fixed index annuity. They typically have a cap rate — like an FIA — but those cap rates are usually quite a bit higher than a FIA. They do have downside risk for the customer — like a variable annuity — but unlike a variable annuity, that downside risk is “buffered” by the insurance company. For example, the insurance company takes the first 10% of the downside risk should equity markets decline in a given year. Many products have additional downside buffer options such as 20% and 30%.

PEK: How is the annuity market managing overall in a continued low-interest environment? How about life insurance?
CJ: For both annuities and individual life products, indexed products have been a very popular choice in the low-interest environment. These products allow for upside potential and downside protection, which is a powerful combination.
Specifically, on the life insurance side, Voya is particularly focused on indexed universal life products. According to industry data, indexed universal life has been the fastest growing product in the industry growing at 7% annually since 2013. We think these products offer customers strong value. In addition to death benefit protection, indexed life products provide a cash-value component that Americans can use to help cover unexpected expenses, education costs or supplement their retirement savings.

Therefore, it’s not surprising that our top-selling life insurance product is our Voya Indexed Universal Life – Global Choice product. As the name suggests, it offers choice to the policyholder and gives them access to three global indices: The S&P 500® in the U.S., Euro Stoxx50® in Europe and Hang Seng Index in Asia. Our patented hindsight strategy then provides customers with greater potential for asset accumulation. It’s such a popular product we have plans to make it even better. In late August, we’ll introduce a new Cash-Value Flex Rider — which will allow customers to “beef up” their cash value in the early years of their contract. We’re excited about this enhancement, and think it will provide even more customer value.◊