Raymond James Financial Inc. of St. Petersburg, Fla., last month rolled out a series of research reports on variable annuity riders designed to help its reps sort through the confusing array of products.
The firm believes it is the first broker-dealer to produce such research.
Riders, or "living benefits," are optional guarantees clients can purchase for 0.4% to 0.8% of the investment, said Scott Stolz, president of Planning Corporation of America,
Raymond James' insurance subsidiary. The coverage ensures that clients can take a certain amount of income or withdrawals from a contract, or guarantee the account accumulation.
About two-thirds of annuities sold today have riders attached, Mr. Stolz said.
"There's no question sales are being driven by these riders," he said.
But reps are confused.
"What we hear from reps is, how do [they sell] the right one?" Mr. Stolz said. "Is there an aspect that might come back to haunt them down the road?"
Insurance companies do little to explain why an adviser might use one rider over another, Mr. Stolz added.
The new research is "top-notch stuff," said William Pomeroy, executive vice president at the Shobe Financial Group Inc., a
financial planning firm in Baton Rouge, La., that is affiliated with
Raymond James Financial Services Inc., the independent-contractor unit.
"We're extremely impressed, and that doesn't happen very often," he said. "We're hard on
Raymond James."
Mr. Pomeroy said riders are very popular with people who want some type of guaranteed income. But they complicate an already hard-to-understand product, he said.
"Anything a B-D can do to simplify that [annuity] landscape is a great service to reps," said Patricia Abram, a Wellington, Fla.-based senior managing principal with CEG Worldwide LLC, a San Martin, Calif., consulting firm for advisers.
Insurance "wholesalers are not given adequate training to help advisers make the right decisions," she said. "Wholesalers are trained to sell" the products, Ms. Abram said.
The reports are similar to research on equities, Mr. Stolz said. They summarize the product, use straightforward language, and if the product has multiple riders, "we do an analysis of how the riders differ," he said.
"If you want a guaranteed death benefit, you can go to that section [of the research] to get companies with the best guaranteed death benefit or the best withdrawal benefits or the best income benefit," Mr. Pomeroy said.
"We're kind of kicking ourselves for not doing this sooner," Mr. Stolz said. "It causes a B-D to deal with the issue of recommend[ing] one product over the other."
Raymond James stops short of making outright recommendations, but the research provides brokers with the information they need to make the right choice, Mr. Stolz said.
The firm ended up with a "preferred list" of products "with best-of-breed characteristics," he said.
Some insurance companies don't like the idea of being compared, Mr. Stolz said. "But we [make recommendations] all the time with equities and with mutual funds. Why should annuities be any different?"
"I would think insurance companies would love this" type of re-search effort, Mr. Pomeroy said. "Now we can get a summary of a contract without bothering the insurance company."
The process the firm used was similar to how many analysts produce research on stocks.
Raymond James prepared initial reports based on prospectuses and product literature, then asked for comments from insurers.
Factual information was corrected, "and we considered any of the ... opinions from insurers," Mr. Stolz said.
"But we resisted making any changes based on opinion," he said. "If we said a particular rider was not really worthwhile, because the company had a couple of better ones, if the company complained, we ignored that, because you end up making the reports wishy-washy that way."
The firm also produced an accompanying white paper to provide background on the use of riders in general. The white paper was "like a primer for our research reports," Mr. Stolz said.
"In our view, [most riders are] appropriate for assets that will be turned into income," he added. If a client just wants to increase assets and leave money to heirs, they shouldn't buy guaranteed-minimum-withdrawal benefits or minimum-income benefits. But they might consider a guaranteed-minimum-account benefit, Mr. Stolz said.
Dan Jamieson can be reached at [email protected].
