Fidelity Investments has decided to suspend sales of annuities from MetLife while the life insurance company considers a possible spinoff, sale, or public offering of a retail unit that offers retirement products. According to InvestmentNews, MetLife, which is the biggest life insurer in the US, has said that the move is under consideration because of expected, more stringent capital rules now that it has been designated a “non-bank systematically important financial institution.” Some in the industry have said that this could cause the insurer to lose distributors.
The possible sale or break up would likely include General American Life Insurance Co, MetLife Insurance Co., Metropolitan Tower Life Insurance Co., and a number of subsidiaries with reinsured risks that MetLife Insurance Co. underwrites. A retail unit break off would result in businesses that are still regulated, but not as regulated as retail products.
MetLife also is reportedly in discussion with MassMutual over the possible sale of its U.S. adviser unit, the MetLife Premier Client Group.
The U.S. Department of Labor’s proposed fiduciary rule is pushing for tighter rules for retirement product sales. This is compelling some insurance company to reassess whether to continue running their own brokerage firm operations. In February, American International Group Inc. announced that it was selling its AIG Adviser Group to Canadian pension manager PSB Investments and private equity firm Light Year Capital. Under the proposed rule, investment advisor standards for giving advice related to retirement accounts would be raised.
Because brokerage firms are seen as distribution outlets for parent companies and the proprietary products offered, those belonging to insurers are at high risk of violating the rule. Insurance owned-brokerage firms often work with clients that have $100K to $500K to invest. Many of them hold most of their wealth in retirement accounts.
In other variable annuities news, Commonwealth Financial Network has decided to restrict its sale of “L share” variable annuities in the wake of greater scrutiny by regulators. Now, none of the brokers in its independent brokerage firm network will be allowed to sell these kinds of variable annuity contracts. Addressing the decision, Commonwealth Sr. VP and General Counsel Jim Adelman told InvestmentNews in an email that it was no longer selling the L share class in the wake of news that certain insurance companies have discontinued or will discontinue the offering.
There has been concern lately over whether L share variable annuities are suitable for investors. They come with contracts that usually charge high fees as a trade of for shorter surrender periods than what other VA share classes provide.
Last year, the Financial Industry Regulatory Authority announced that it would take a harder look at the marketing and sales of VA practices.
If you are an investor considering in getting involved in variable annuities you should know that they aren’t for everyone. Their sales may fluctuate and they come with risks, especially in a volatile market. Also, they can be expensive and charge higher fees. That said, they can also bring financial rewards. It is important if you are considering investing in VAs, that you understand the risks and that your money can handle them in the event of short- and long-term losses.
At Shepherd Smith Edwards and Kantas, LTD LLP, our variable annuities fraud lawyers represent investors seeking to recover their funds. Contact us today.
Fidelity suspends MetLife annuity sales as insurer mulls breakup, InvestmentNews, February 25, 2016
MetLife in talks to sell U.S. adviser network to MassMutual, Bloomberg, February 25, 2016