Operator: Our next question is from of Mark Hughes with Truist Securities.
Mark Hughes : Sorry if I might have — you might have touched on this. I joined late. But I think you had commented how you’re optimistic on RILA sales, which would become a bigger part of your mix. Could you talk about kind of how you see the long-term dynamic between RILAs and fixed indexed annuities and how your distribution kind of matches up to support one or the other, how it may evolve over time to support the RILA sales if it needs to.
Chris Blunt: Sure. Yes. No, great question, Mark. So I’d say a couple of things. If you think about a fixed indexed annuity, it’s got a floor of 0 and an opportunity to participate in markets, but by definition, it’s got a capped upside. RILA allows someone to take a risk level below 0, right, typically in the form of a buffer, say, 5%, 10%, even 20% of downside absorbed by the carrier, which just allows us for a lot more upside. So typically, it’s a younger demographic. It’s someone either with a higher risk tolerance or in many cases, a younger demographic. So it’s a market we’ve never played in at all, right? And so all of this is greenfield and really should be incremental sales and incremental margin for us. So — and then the other from a distribution channel perspective, not surprisingly, RILA tends to be more popular in the broker dealer channel, whereas FIAs are tend to be more popular in the IMO and in the bank channels.
And so a lot of our activity in adding distribution partners starting a couple of years ago, have been to add more broker-dealers in anticipation of the RILA launch. So hopefully, that helps a little bit a bit younger demographic, client with a higher risk tolerance. I’ve said this before, it opens up a massive pool because you have to ask the question of, yes, everybody should probably own some mutual funds and they’ve got a very long-term time horizon and some equities, but that comes with a tremendous amount of volatility. And so I think a lot of people like the peace of mind of knowing that there is some constrained outcome set. And so yes, this is a category that I think for the industry is going to be really attractive. But lastly, I will say it’s playing to the same strengths.
Again, we’re just buying a different collared option with a wider band of outcomes. But it’s — at the end of the day, it’s a spread-based product and the key drivers that have made us successful in the FIA space should translate in the RILA space.
Mark Hughes : And then I think a somewhat competitor of yours has talked a bit more about integrating their annuity products into these retirements, the dated funds that they’re starting to see some movement there. Can you talk on that opportunity, whether that’s something you’re pursuing directly as another distribution channel source of growth?
Chris Blunt: Yes. I would say it’s not top of the queue for us. There are a lot of, as you know, complications within — and challenges within that market. It’s been kind of a slow boat coming. I do think the products can have a big impact for society to be able to do that for folks to be able to participate in their 401(k) plans. But I would say right now, with all of the distribution opportunities we have both in institutional and retail that feels like a better priority for us. But we continue to look at it and want to stay close to it. If appropriate, we think that’s a market we could compete in if we choose to.
Mark Hughes : Yes. Would you think the economics at this point are not quite there yet? Or is it just — there’s not as much demand in that 401(k) market?
Chris Blunt: Yes, I’m probably not the best expert on this topic, although I studied it years ago at a different firm quite intensively. I think the biggest issues are record keeping. So it’s kind of the expense and complication of getting plan sponsors to adopt it and more importantly, record keepers to pay for all the enhancements to make it work. And then the other is for it to be get broad-based acceptance, you do end up with a lot of smaller accounts. Now that can be solved for through some sort of omnibus structure. But yes, it’s just a little more complicated. I would also think carriers with a big recognized brand name and/or retirement plans, presence of their own, probably will have a little bit of a leg up there. So hopefully, that helps.
Mark Hughes : Yes, understood. Yes, it sure does.
Operator: Our next question comes from the line of Wes Carmichael with Autonomous.
Wes Carmichael: I just had a question on the capital consumption on the RILA product versus an FIA or a MYGA. I imagine there’s the same [C4] charge on the premium. But when you look at RBC, is the RILA product favorable relative to a fixed annuity sale? Or is there not much of a difference there?
Chris Blunt: Wendy, do you want to tackle that one?
Wendy Young : Sure. Thank you. Yes, there’s not much of a difference. As Chris said, it’s — basically, the difference between the product is the option that we purchase and there’s really no difference in the capital charge on that.
Wes Carmichael: And then just maybe just following up on the DoL and the final rule, obviously, your new business origination capabilities are much more diversified than the last time we saw this, but I think you mentioned 15% or so of gross sales might be the most impacted. Can you maybe just give us any additional perspective on what changed this time around with this version? And if there’s any way to kind of dimension the potential expense impact, that would be great.
Chris Blunt: Yes. I mean the honest answer is not much changed. And I think that’s the frustration of the industry is it’s eerily similar to the role that was put forth before. So there will be enhanced compliance expense. I don’t think any of it is going to rise to a level that’s going to cause us to question the forecast that we’ve put out, et cetera. So I put it more in the — it’s annoying. A number of people feel that it’s unnecessary given all the other regulations that are in place. The bigger concern that I have, which I mentioned in the notes, is it could be an impediment for agents serving the middle market and just moving upstream. I do think it’s going to take a time — it’s going to take a while for that impact to be felt.
And so again, given we probably have more — not probably, we have more sales opportunity than capital right now. That’s — the constraint is not opportunity for sales. So again, there’s nothing in this that’s going to cause us to change our plans. The concern on my end is it will be impactful to certain agents. And I think unfortunately, it would be disproportionately impactful to agents that are serving the middle market. I don’t know, Wendy, if there’s anything you want to add to that?
