In the midst of the new conflict of Interest rule, company expands group annuity investment line-up
The Department of Labor’s (DOL) new fiduciary rule is causing many advisors to step back and consider their existing business practice.
Among other things, the new rule will further define what it means for advisors to put their clients’ interest first when giving advice and drive increased transparency around compensation and conflicts of interest.
Revenue sharing, otherwise known as 12b-1 fees, are common practice today, but they expose advisors to receiving variable compensation. Because the DOL believes such fees create a conflict-of-interest environment, under the new rule, advisors will have a difficult time receiving them on sales to qualified assets, unless they make use of an exemption.
While the use of an exemption is possible, it may be challenging.
If an advisor’s financial institution allows the use of exemptions, the process to utilize them will involve additional paperwork, compliance and legal efforts.
To assist advisors with levelized fee options, OneAmerica has expanded its group annuity platform to include zero revenue sharing funds. Zero revenue sharing funds allow advisors the option to bypass the need for an exemption. With zero revenue sharing funds, participants pay only the investment management expense.
This levelizes the fee across all participants since the opportunity for variable revenue sharing is removed. Other fees, such as investment advisory or provider fees are billed separately — typically as a flat or asset-based fee.
A smooth transition for advisors
“At OneAmerica, acting in our customers’ best interest is simply the way we do business,” said Bill Yoerger, president of OneAmerica Retirement Services. “As soon as the new rule was announced, we were immediately thinking, ‘what can we do to make this a smoother transition for our advisors?’ ”
“We conduct a thorough vetting process with the addition of new funds to our platform. The initial roll out will consist of over 200 zero revenue sharing funds and is expected to grow,” said Terry Burns, assistant vice president of products and investments for OneAmerica Retirement Services. “Due to the push for increased fee transparency, the industry has been slowly conforming to the use of zero revenue sharing funds over the past several years. In fact, the use of these funds has increased by 16 percent, up to 72 percent, in just the past three years.1 It is my speculation that the use of zero revenue sharing funds will continue to rise dramatically due to the new rule.”
Yoerger added, “From a best interest perspective, zero revenue sharing funds have some distinct advantages in the new fiduciary world. It paves the way for levelized compensation, promotes equity among plan participants and can alleviate the need for negotiating share class conversions to lower plan costs.”
“Of course, plan sponsors need to work with their advisors to weigh the benefits of adding zero revenue sharing funds,” said Burns. “OneAmerica offers a broad range of investment options, and for those advisors who DO wish to use revenue sharing funds, we offer a unique product in the market called Strategic and Targeted Allocation of Revenue (STAR). This program ensures that participants receive a proportional allocation of revenue sharing based on their individual investment allocation choices. It effectively eliminates the possibility of certain participants paying more of the plan administration costs than others.”
To find out more about zero revenue sharing funds or STAR, contact the OneAmerica Retirement Services Internal Sales Desk at 1-866-313-7355. OneAmerica Retirement Services has $58.4 billion in assets under administration and services over one million plan participants.2
1Callan Associates, 2016 Defined Contribution Trends Survey, 1/01/16
2As of 6/30/16
OneAmerica is the marketing name for the companies of OneAmerica. Products issued and underwritten by American United Life Insurance Company® (AUL), a OneAmerica company. The information is provided for informational purposes only and is not intended as financial or legal advice. Changes in the tax law may affect the information provided. • Neither AUL nor their employees provide tax, legal, fiduciary or investment advice. • Registered Representatives of and securities offered through OneAmerica Securities, Inc., Member FINRA, SIPC, 433 N. Capitol Ave., Indianapolis, IN 46204. 1-877-285-3863.
A national leader in the insurance and financial services marketplace for nearly 140 years, the companies of OneAmerica help customers build and protect their financial futures.
OneAmerica offers a variety of products and services to serve the financial needs of their policyholders and customers. These products include retirement plan products and recordkeeping services, individual life insurance, annuities, asset-based long-term care solutions and employee benefit plan products. Products are issued and underwritten by the companies of OneAmerica and distributed through a nationwide network of employees, agents, brokers and other sources that are committed to providing value to our customers. To learn more about our products, services and the companies of OneAmerica, visit www.OneAmerica.com/companies, the OneAmerica Newsroom or follow @OneAmerica on Twitter.