While industry experts and broker-dealers are working to simplify variable annuity processing and cut down on paperwork electronically, software vendors are trying to help advisers easily compare products to comply with suitability requirements.
Last year, the Depository Trust and Clearing Corp. of New York electronically processed 300,000 of the nation's approximately 2 million annuity contracts, which means that more than three-quarters are still processed manually, said John Ziambras, managing director and general manager for insurance services at DTCC.
"We look at insurance processing as the last frontier, at least in terms of mainstreaming the transaction processing of them," he said.
The not-for-profit processing company handles trade processing for most of the nation's stock and mutual fund transactions.
"We are trying to make annuities simple to process, simple to trade. They are complicated products," Mr. Ziambras said.
The company has formed an advisory board made up of industry information technology and operations executives from 11 of the largest broker-dealers and 14 of the largest insurance companies.
According to Mr. Ziambras, DTCC has also worked closely with the Financial Services Institute Inc. of Atlanta and the Reston, Va.-based National Association for Variable Annuities (which now calls itself The Association for Insured Retirement Solutions but retains the acronym NAVA).
"There are lots of moving parts," Deborah Tucker, a vice president at NAVA, said about creating standards for annuity processing. "Distributors are awaiting the boomer avalanche or tidal wave where straight-through processing is going to be crucial to doing business on a timely basis."
NAVA created a set of guidelines intended to simplify and improve electronic processing and sales of variable annuities, and is now seeking feedback.
"Our focus now is clearly on pilots," Ms. Tucker said, noting that several distributors have plans to begin production pilots this year. These include
Fidelity Investments, LPL Financial Services, Merrill Lynch & Co. Inc. and Wachovia Securities LLC.
"These are production pilots on the distributor's platforms with their vendors and their carriers," Ms. Tucker said.
SUITABILITY REVIEWS
In tackling suitability issues, several companies are piloting products for comparing data on variable annuities to handle annuity selection.
Insurance Technologies LLC, a Colorado Springs, Colo., provider of point-of-sale software for insurance products, is rolling out a product called VisibleChoice at the end of March. The product will provide advisers with an online service for conducting preliminary suitability reviews.
"We saw that there were problems with how the [broker-dealers were selling the annuity] products. And then Rule 2821 came along — which was really intended for seniors, though never tacitly stated that way — but we saw the advantages of applying this for all annuities in terms of suitability," said chief technology officer David Fenimore.
The rule has provisions to ensure the suitability of VAs, including recommendation requirements, additional supervision and oversight of VA sales and training. The review process must also be completed within seven days before submitting the sale to the carrier.
The rule goes into effect May 5.
VisibleChoice will be priced on a per-rep or per-adviser basis to the broker-dealers each month. While final pricing is not yet available, Mr. Fenimore said that it will probably be less than $40 a month per adviser and added that manufacturer-carriers will probably share in paying for the system.
"They [the carriers] will benefit from a level playing field," he said.
Mr. Fenimore said that there are plenty of benefits to both the industry at large and individual advisers in a product like his.
"Determining the appropriateness of an annuity product, our system will easily integrate into an STP [straight-through processing] system, the ability to garner acceptance from both the broker-dealer distributor-sellers and the manufacturer-carriers," he said, adding that perhaps the biggest advantage will be in avoiding future litigation like that involved in the cases of Raymond James Financial Inc. in St. Petersburg, Fla., versus the state of Arizona, or the state of Minnesota versus Allianz Life Insurance Company of North America in Minneapolis.
Another approach to suitability and compliance is being taken by Lansare Corp. of Milwaukee. The company provides its annuity data aggregation services to broker-dealers and, in turn, their advisers. Its on-demand platform connects to those of the major annuity carriers and clearinghouses that produce or clear life insurance contracts and then provides broker-dealers access to that annuity data.
Their pricing is based on a per-annuity-contract basis: For 300,000 contracts or more, the company will charge 3 cents a month per contract. This includes all compliance information, financials and books of business for banks and brokerage firms.
"We're kind of the sales force of financial data, especially in the annuity space," said Gregory P. Meyer, chief executive of Lansare.
"All of this can be turned on within days," he said, adding that 10 banks and brokerages are using their services.
Products that claim to help planners and advisers compare variable annuity features have a mixed reception.
"As I begin to consider integrating VA living-benefit features into my client's overall financial plan, I find that my greatest concern is that I'm never totally convinced that I've identified the best product for the client," said Marc S. Freedman, a certified financial planner and president of Freedman Financial Associates Inc. of Peabody, Mass. The firm manages $200 million in assets.
"With so many bells, whistles, new features, changing cost structures and continued enhancements, where can I go to be certain I've helped a client make a solid long-term decision, without fearing a new product will appear tomorrow that discredits what I just sold?" Mr. Freedman said.
"I don't think the tools would make the product more interesting to me in my practice. I already recommend variable annuities to my clients, and most good advisers who currently use them know when variable annuities are suitable," said Jeffrey N. Tomaneng, an independent financial adviser with U.S. Wealth Management LLC in Braintree, Mass., which manages about $20 million in assets.
Davis Janowski can be reached at [email protected].
