Prudential Financial Inc.'s decision to cut off contributions into a slate of older variable annuities with attractive benefits has raised the ire of financial advisers, this time because they were given so little time to add money to the contracts.
In a letter to advisers dated Aug. 24, the insurer noted that it would suspend acceptance of additions into a number of its Highest Daily Lifetime Five, 6 Plus, Seven and 7 Plus contracts.
The deadline for filing paperwork on additional contributions coming from tax-free 1035 exchanges or from individual retirement account rollovers was Aug. 31. Advisers had until today to submit cash contributions to existing contracts.
The affected contracts are no longer for sale, and the announcement doesn't affect variable annuities with the available Highest Daily Lifetime Income or Highest Daily Lifetime Income 2.0 benefits.
The Prudential letter, which was obtained by InvestmentNews, cited “our economy's unprecedented and persistent low interest rates and ongoing market volatility” as factors in the decision.
The insurer's call to cut off contributions to older VA contracts isn't really a surprise to advisers, as numerous carriers — including fellow VA giant MetLife Inc. — have made similar decisions this year. However, the short deadline, and the fact that the letter was sent just before Labor Day weekend, left some of them scrambling to get in last-minute paperwork.
“It made me madder than all get-out; that's not the way you do business,” said Bob Cacy, an adviser at The Cacy Co. and an owner of one of the affected VA contracts.
He said that his firm received the letter Aug. 30.
“I don't think there's a way to [make a transfer] in 24 to 48 hours,” Mr. Cacy said.
Kevin VanDyke, president of Bloomfield Hills Financial, said that the notice came just as his firm was busy helping retirees who were offered pension buyouts from General Motors Co.
“Some of the GM money is going to Prudential, and they got to sneak in under the wire,” he said.
The firm had a couple of cases where it had to tell clients that they had four days to sign off on their paperwork.
Prudential released a statement through spokeswoman Lisa Bennett.
“We communicated in advance with impacted financial professionals. Our goal remains to continue to proactively and prudently manage the assets investors entrust to us,” the statement read in part.
Although some broker-dealer firms reported getting notice as early as Aug. 21, advisers noted that life insurers typically give them at least a month to talk to contract holders and wrap up last-minute contributions.
Even wholesalers seemed unaware of Prudential's announcement, advisers said.
Susan Moore, an adviser at Moore Wealth Management Inc., said that she saw her wholesaler around Aug. 20 and was never told about the upcoming change.
“It gives me pause that this was put out with such a tight time window and with so little notice even to the rank-and-file people who work at Prudential,” she said.
The firm didn't receive a letter.
In fact, Ms. Moore was scheduled to meet with one client last Friday who was interested in adding to an existing contract.
“We hope this is just a suspension and not a closure,” she said.
Paperwork for additional contributions typically takes two to three days to get from the adviser's desk to the broker-dealer and then to the insurer, following a suitability review at the firm — and that is if all of the forms are in good order. Forms that aren't are kicked back to the adviser, and the process essentially begins again.
Further, the actual transfer of funds can take well over a week.
Cash additions from a brokerage account may take three to five business days to process but can take as long as 10 days if the client is liquidating assets to make the addition. Contract contributions from IRA rollovers or qualified accounts can take as long as two weeks.
Advisers surmised that they were given a short time frame because Prudential wanted to avoid a flood of last-minute funds.
“It happened so fast that they wanted to make sure nobody could take the offer,” Mr. Cacy said.
In a sense, brokers have made their peace with the fact that Prudential and other insurers are blocking future contributions.
“With guarantees [growth and withdrawal rates] at 6% and 7% and with the 10-year Treasury being between 1.5% and 1.7%, it doesn't make sense to let people pour money into these contracts,” Mr. VanDyke said.
“I don't blame them for not making a big announcement,” he said. “If you tell people you're closing a contract in three weeks, they will be your biggest three weeks.”
Still, affected clients who had intended to continue putting money away in their annuities inevitably will have to find someplace else to save.
Marc Silverman, president of Silverman Financial Inc. and an adviser who sold some $26 million in Prudential annuities this year, said that his clients who were making continuing contributions to their contracts now will have to sock the money away in savings.
“We are putting clients in mutual funds and Roth IRAs, and beefing up 401(k) contributions,” he said.