Brokers up in arms over The Hartford's VA plan

Jun 9, 2013 @ 12:01 am

By Darla Mercado

Broker-dealer executives are worried about the amount of work — and the potential liability — they may face following The Hartford's announcement that it's reining in investment options for some variable annuities.

The insurer recently notified firms that a swath of its legacy variable annuity clients will need to allocate their account values toward more-conservative investments by Oct. 4. Those failing to make the change will lose the income rider they've been paying for.

“We're very uncomfortable with the liability, the work and the effort that they've created for us,” said Scott Stolz, president of Raymond James Insurance Group. “We're exploring ways to reduce that potential liability.”

Some 2,300 contract holders at Raymond James will be affected, he added.

“The onus is now on the firm,” said Ethan Young, an annuity research manager at Commonwealth Financial Network. “It's a burden to the broker-dealer, the clients and the advisers.”

The issue is further compounded by the fact that The Hartford Financial Services Group Inc. not only stopped selling annuities, it also moved its life insurance business over to Prudential Financial Inc. This leaves broker-dealers with less leverage when it comes to pushing back against the company's decision.

“It's not like we can't sell their products; we have no [Hartford] products to sell,” said Judson Forner, a senior analyst with ValMark Securities Inc. “What's really scary is if this persists and you have other carriers who want out — what other creative ideas will they come up with?”


He noted that some clients undoubtedly will fail to make the required investment changes.

“[The Hartford is] doing their best to make it as well-known as possible that if action isn't taken, you'll lose the rider,” Mr. Forner said. “But inevitably, there will be someone who won't comply, and there will be a continued outcry.”

At least one firm, however, has come up with a way to cooperate with The Hartford. Edward Jones, which has a relationship with the insurer going back to the 1980s, has asked it to work with the firm and monitor how many clients will make the investment changes to keep their rider. The insurer also will provide Edward Jones with a monthly report on which clients have made the changes and which ones still need to respond.


More than 60,000 of the firm's clients will be affected by at least one of the restrictions The Hartford announced this spring, which include the mandatory investment change for certain riders and the company's decision to stop taking new allocations to the VA's fixed-accumulation feature.

“It's extra work for us, but it's not something we'd want to let happen naturally,” said Merry Mosbacher, a principal in Edward Jones' insurance marketing unit. “We're comfortable that we'll be able to manage the process so nobody is negatively affected by the loss of the rider.”


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