B-Ds may cut ties with insurers over annuity rules

As states prepare to roll out new annuity sales rules, broker-dealers are worried that insurers may dump additional compliance responsibilities on them. And if that happens, broker-dealers said, they may consolidate their annuity business with fewer carriers.

The brokers’ concerns stem from amendments to the annuity suitability model adopted by the National Association of Insurance Commissioners in March. The new rules make carriers responsible for ensuring that annuity transactions are appropriate for customers, and require carriers to make sure that sales personnel take a one-time course on annuities and are provided with in-depth product training.

Broker-dealers worry that carriers will saddle them with tracking which of their reps have taken the courses and which have received product-specific training. They also worry about state reciprocity: Will advisers be required to take courses for all the states in which they are licensed?

“What do advisers gain by taking the course four or five times?” asked Scott Stolz, president of Raymond James Insurance Group, the insurance agency of Raymond James Financial Inc. “Only four or five states do this now, and it’s already a mess. I can’t imagine what will happen when others incorporate it.”

The new annuity model has been adopted as a statute in Wisconsin. Other states are either implementing the rule through administrative actions or have scheduled it for consideration at their next legislative session.

The expense and administrative difficulties of the rule could force firms to rethink their relationships.

“One of the possible outcomes is that companies like ours, which works with 20 insurance companies, will go down to six so we can have just enough that it’s manageable,” Mr. Stolz said.

Zachary Parker, senior annuities and insurance consultant at Securities America, agrees. “We feel that there is only so much we can do,” he said. “If it becomes too much, we might have to look at the relationships and determine if we can continue them.”

Pacific Life Insurance Co. is already putting more responsibility on broker-dealers. It sent a memo to brokerage firms in late April detailing that Texas requires producers to complete four hours of initial annuity training and then four additional hours of annual annuity training in order to sell annuities in the state. In its note, Pacific said that it is the responsibility of the registered rep and broker-dealer to ensure compliance with the training requirements and to maintain proof of completing the course.

For their part, insurers are concerned about their liability for making sure that selling agents, in-cluding broker-dealers, are current with their licensing requirements.

“We don’t quite know how we are going to comply and make sure we’re in full compliance,” said Pacific Life spokesman Tennyson Oyler.

Although the new annuity suitability rules allow insurers to farm out their compliance duties to a third party such as a broker-dealer, some brokerage firm executives balk at ac-cepting that additional responsibility.

“I’m certain it would not be an insignificant burden for us to track the reps’ training to satisfy the rule,” said Paul Tolley, compliance chief at Commonwealth Financial Network.

New York Life Insurance Co., the largest seller of fixed annuities, doesn’t expect to pass on the responsibility of tracking training requirements to broker-dealers.

“In those states that adopt the NAIC suitability model’s new annuity training requirements, New York Life plans to independently verify that the broker-dealer’s registered representative has completed the training before we will process the annuity application,” said spokes-man Bill Werfelman.

MetLife, the second-biggest variable annuity seller, is still grappling with how to contend with annuities training and the product-specific course, according to spokeswoman Jessica Ong.

“Having to figure out exactly how insurance companies can fully comply [with the model act] hasn’t been determined yet, and we’re looking at all options — it could be going to the broker-dealer or it could be in-house,” Mr. Oyler said. “It’s too early to tell.”

E-mail Darla Mercado at [email protected].