Distributors guide advisers through VA maze

Variable annuities, once the misunderstood child of the financial planning industry, are finding a new place in advisers’ hearts now that distributors are guiding them through the products’ complexities. In the past, their high costs and complex nature have kept variable annuities in the shadow, but distributors and advisers alike are finding that education is key to including these annuities as part of a comprehensive plan. “With more than $20 trillion to invest, it’s essential that all distributors provide the tools and training to allow advisers to effectively handle income planning,” Michael J. Gilotti, vice president of new-business development for Farmington, Conn.-based General Re-New England Asset Management Inc., said at Reston, Va.-based NAVA’s 2007 annual conference in Boston last week. Chain of influence Insurance industry representatives at the conference insisted that there is a chain of influence behind sales of variable annuities that trickles down from broker-dealers and wholesalers to advisers and clients. The wholesale level is an especially crucial connection point that needs improvement, said Frank Zafran, managing director of New York-based Morgan Stanley’s global-wealth-management group. “I’ve traveled with wholesalers, and doors would close because there was no value in the relationship,” he said. “How do you understand the financial adviser and the client if you just walk in and leave?” The answer to that — as well as to the problem of engaging non-VA producers — is through education, Mr. Zafran added. LPL Financial Services of Boston and San Diego, along with other broker-dealers, has found ways to help advisers navigate the intricacies of variable annuities and their riders.
The company has a series of programs in place, including the Fast Forward City Tours, a two-and-a-half-day training seminar through six cities, as well as regular webcasts and a firmwide publication to focus on product training. “Our advisers are thirsty for the right income-planning tools,” said Kevin Hogan, a senior vice president, product development, with LPL. “With that comes the burden of training.” But that training has paid off for producers, who are employing solutions they may not otherwise have thought of, according to industry observers. “I do mostly fee-based work, so I only use variable annuities in non-traditional situations,” said Michael L. Jones, a certified financial planner and president of Lifetime Financial Solutions Inc. in Louisville, Ky. LPL, Lifetime Financial Solutions’ broker-dealer, provided him with a workshop on variable annuities in such situations and has given him “an abundance of information.” “VAs would perhaps be a portion of assets for those clients who are safety conscious and nervous about the marketplace,” Mr. Jones said. “Had I not been educated about it, I probably wouldn’t have used it.” But Mr. Jones was quick to note that the training sessions haven’t fogged his duty to his clients: The products work as part of an entire plan, and he will recommend them only when they fit with a client’s needs. Although willing to work with wholesalers, advisers have also expressed skepticism on the type of education a company will provide. Some would prefer an educational push from the entire insurance industry. “Additional resources from the [Kansas City, Mo.-based] National Association of Insurance Commissioners would be good, and some non-biased info would be needed,” said Julie DeTienne, a registered representative at CUE Financial Group Inc. of Phoenix. She handles her research on variable annuities independently but has relied on information from wholesalers when working with riders and other features. “I don’t want anything that’s product oriented, as in wholesalers’ coming in to make pitches,” Ms. DeTienne said. But companies have responded to that call: Prudential Annuities, a unit of Newark, N.J.-based Prudential Financial Inc., has partnered with the Wharton School of the University of Pennsylvania in Philadelphia to teach wholesalers and advisers how to help clients reach their retirement goals. Participants can also get a continuing-education credit from the program. “The continuing-education content is approved by state insurance departments, and it steers clear of any products, as well as anything that’s sales skills oriented,” said Eva Vitale, vice president of Prudential Annuities’ learning organization. During the second quarter, VA sales jumped 13%, hitting a record $48.5 billion, according to data from LIMRA International Inc., a Windsor, Conn.-based global association of insurance and financial services companies.
“It is very difficult to determine how much impact the educational programs have on VA sales, since there are other factors,” said Joe Montimy, LIMRA’s associate research director for retirement research. Recent market volatility could make guaranteed-living-benefit riders appealing to customers, but the educational programs encourage advisers to consider them as part of a planning package, he added. Consumer education is another point of contact for the providers, according to Eric S. Henderson, senior vice president, individual-investments group, at Nationwide Financial Services Inc. of Columbus, Ohio. Nationwide has paired with Boston College of Newton, Mass., to create the RetirAbility Check, a calculator that grades consumers’ readiness for retirement. The results are generic enough that clients can go over them with advisers and use them to create a plan. “We’re seeing education that goes straight to the consumer so that they understand variable annuities more and ask their advisers more questions,” Mr. Henderson said. Simplicity sought Consumers and advisers point out that they want simplicity, he said. Ms. DeTienne agrees. The rapid evolution of the product has made research and feature comparisons cumbersome at times, she said. “We manually create spreadsheets to compare differences in variable annuity contracts, so we’re looking at five products at once and figuring out [mortality-and-expense] charges,” Ms. DeTienne said. “It’s not something I show my clients,” she said. “I don’t want to present them with five different products; they’re looking at us for guidance.”