How Statehouses Can Avoid Repeating Washington’s Mistakes

The good news? There’s a better way to protect consumers saving for retirement.

By Susan K. Neely, President and CEO, American Council of Life Insurers
FEBRUARY 12, 2019 | 10:30 AM

Consumer protections are front and center in the Maryland General Assembly this month, as lawmakers promote a bill called the Financial Consumer Protection Act. Unfortunately, there’s a provision in the 55-page proposal that would hurt middle-income Marylanders trying to protect themselves and their families with better financial security.

The issue is consumer access and consumer choice with financial products that can guarantee lifetime income. Annuities are the only financial products that do so. They can give consumers a stream of income for life like an individual pension plan. Annuities primarily help middle-income Americans. The latest data shows the average annuity owner has a household income of $64,000, while more than a third have household incomes less than $50,000.

Most people buy their annuities from insurance agents, getting information from financial professionals who are oftentimes members of their local communities. These financial professionals are paid a commission by the company who issues the product.

Fortunately for Marylanders, the state already has in place a robust set of laws and regulations that assist consumers in making informed decisions about retirement product purchases and regulators who are responsive in ensuring consumers are being treated fairly.

The problem comes with the fact that the bill in Maryland would make every financial professional who sells an annuity a “fiduciary” of the customer. This would end commission-based sales because fiduciaries are generally not allowed to represent both the buyer and seller in the same transaction.

If financial firms are forced to move to a model where the only way a consumer can get financial advice is if that consumer pays a fee to a financial professional year after year out of their own pocket, then lower- and middle-income consumers — everyday Americans — are far less likely to be able to consider all their options for their own retirement needs. It’s also unfair to consumers who don’t want a fee-based arrangement where the annual charges can become costly over time.

You don’t have to take my word for it. During the short time a “fiduciary” rule out of Washington, D.C., was in effect a few years ago, there was a chilling effect on the availability of retirement information to middle-income Americans. Without access to commission-based products, the resulting fee-based only model puts retirement products out of reach for many households. If a federal court hadn’t stopped the rule, as many as four million middle-income families would have lost access to information about annuities unless they paid an annual fee for it, based on data from LIMRA, an insurance research group.

This mistake taught us important lessons. The good news is there’s a better way, a way that achieves consumer protections and protects consumer choice.

The American Council of Life Insurers — ACLI — supports a “best interest” standard of care that would require all financial professionals, when making a recommendation, to act with care, skill, prudence, and diligence based on the retirement saver’s financial needs and objectives and to address conflicts of interest. The only real difference between a “fiduciary” standard and the ACLI-backed “best interest” standard is that agents may continue to get paid a commission rather than annual fees for selling an annuity but, even then, only if they don’t put their own financial interests ahead of the consumer’s and are transparent in the compensation they will receive in connection with the sale. And ACLI’s “best interest” proposal will work to strengthen the existing robust laws and regulations without hurting Maryland consumers.

Importantly, the ACLI “best interest” proposal doesn’t discriminate against lower- and middle-income consumers who are unlikely to be able to afford a fee-based approach. Instead, it empowers all consumers to be able to protect themselves and their families in an uncertain world. It says everyone deserves access to tools to strengthen their own financial security and the peace of mind that comes with it.

As society and work change, Americans need policy solutions that protect them and help them achieve financial security regardless of where and how they work, their life stage, or the economic status of their household.

We all know people are living longer and financial security into retirement is a big challenge. Government policies that limit consumer choice ignore the fact that financial situations are varied and personal. For our part, we want to help people achieve retirement security with a choice of products that are available, accessible, and affordable for all.