Portability arrives for variable annuities

Oct 31, 2005 @ 12:01 am

By Dan Jamieson

IRVINE, Calif. - Annuities are becoming more portable.

The Depository Trust and Clearing Corp. of New York has launched a new service, ACATS/IPS, that electronically transfers annuity account information between brokerage firms.

ACATS is the automated account transfer service, long used by the brokerage industry to transfer securities accounts.

DTCC, an industry-owned clearance and settlement entity, has combined ACATS with its Insurance Processing Service, or IPS, to automate the process.

ACATS/IPS made its debut in early September, with three insurance carriers and seven brokerage firms using the service: Hartford Life Inc., Simsbury, Conn.; Pacific Life and Annuity Co., Newport Beach, Calif.; Prudential Financial Inc., Newark, N.J.; Merrill Lynch & Co. Inc., New York; Piper Jaffray & Co., Minneapolis; Robert W. Baird & Co. Inc., Milwaukee; Stifel Nicolaus & Co. Inc., St. Louis; Wachovia Securities LLC, Richmond, Va.; and Wells Fargo Investments LLC, San Francisco.

A.G. Edwards & Sons Inc. of St. Louis also has signed on, accord-ing to Randi Gordon, director of product management at DTCC in New York.

Annuities are held at the issuing insurance company, not at broker-dealers. So, the automation process involves the exchange of information rather than an actual account transfer.

"The account does not transfer, just the registration changes," Ms. Gordon said.

Until now, updating the registration had to be done manually.

Now, with ACATS/IPS, when an investment account is transferred, any annuity information reflected in that account will transfer automatically, as well, said Nasser Mortazavi, director of business development at Beta Systems of Brookfield, Wis., the service bureau owned by Thomson Financial of New York, a unit of the Thomson Corp. of Stamford, Conn.

Beta Systems is working with DTCC to introduce the program. DTCC acts as the central communications hub, which reduces paperwork, Mr. Mortazavi said.

With ACATS/IPS, "You don't have to go insurance company by insurance company" to change account ownership and rep information, he said.

Currently, the service handles only annuities - fixed, variable and immediate, said Lana Macumber, director of marketing and business development at DTCC.

Life insurance products may be added, "but at this time the industry need is not there," she said.

The rollout of ACATS/IPS follows a pilot program, which started in December 2004.

The project was driven by DTCC's insurance company users who wanted something similar to ACATS, Ms. Macumber said.

Supervising VA business

DTCC also offers an annuity transaction service that will let brokerage firms supervise transfers within variable annuities.

The rollout for the transaction service is targeted for the second quarter of next year,

"The ultimate goal is to restrict brokers from going outside the firm" to make changes in investment accounts directly with insurance carriers, Ms. Macumber said.

"It's very regulatory driven," she added.

Last March, Merrill Lynch paid $13.5 million in fines to resolve charges brought by Connecticut and New Jersey over an alleged market-timing scandal involving four former reps at the firm and the Millennium Partners LP hedge fund.

Merrill also was censured by the New York Stock Exchange. The case involved both mutual funds and variable annuities.

Because reps go directly to carriers to make changes in annuity investments, broker-dealers have difficulty tracking these changes, Ms. Macumber said.

The annuity transaction project will build protocols for the industry to communicate transactional information through DTCC, Mr. Mortazavi said.

Brokerage firms will then be able to develop variable annuity trading systems for their brokers, Ms. Macumber said.

An August memo from the New York- and Washington-based Security Industry Association's insurance committee said the annuity transaction project will involve "pre-submittal suitability and compliance review" of variable annuity transactions by brokerage firms.

The memo said the effort is a top priority. The SIA's insurance committee is made up of representatives from large firms, including Merrill Lynch.

The DTCC also offers a centralized facility for handling insurance applications, licensing, insurance-carrier appointments and other administrative tasks, Ms. Macumber said.

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