VA suitability tools speed up an increasingly daunting task

Because of the stigma often connected to variable annuities, I am at times hesitant to write about technology associated with them.

Like them or not, though, VAs are sold by plenty of financial advisers.

“While there is some kind of misconception out there that fee-based or fee-only advisers never use annuity products, the fact is a majority of advisers do use or recommend annuities with at least a portion of their client base,” said Rebecca King, principal of an eponymous consulting firm.

She pointed to data from the Financial Planning Association's 2012 Trends in Investing Special Report, a survey of 378 members.

Among responding advisers who do use or recommend variable annuities, 30% reported that they plan to increase their use of the products in the next 12 months.

That is down only slightly from last year's survey, in which 32% said they expected to increase their use.

One way to make sure the products are sold to the right people is through technology.

In the past, that meant broker-dealers had to load raw prospectus data into spreadsheets and try to compare VA offerings side by side.

Two solutions that are more automated are now on the market — one from Insurance Technologies LLC and one from Morningstar Inc.

Insurance Technologies this month released version 3.0 of VisibleChoice, its annuity sales and suitability application for broker-dealers and advisers.

Advisers who sell insurance but have never heard of VisibleChoice — it was introduced in 2008 — probably have used some of the company's other software. Its ForeSight product has been used by many insurers on a white-label basis for years to perform product illustrations, needs analysis and other tasks.

VisibleChoice is an automated online tool for performing required suitability reviews when researching and selling variable annuities.

The Financial Industry Regulatory Authority Inc.'s know-your-customer and suitability rules, which went into effect last month, have put broker-dealers under more scrutiny. Firms are required to capture more data attesting to the suitability of sales of annuities and other investment products.

Those data are analyzed by annuity actuaries to determine, among other things, where the funds contained in the contract are coming from, down to the subaccount level.

Although Insurance Technologies has an offering for independent advisers, many will access it through their broker-dealer's tech platform.

The application lets advisers sift through annuities from potentially hundreds of choices — though broker-dealers often have a much smaller number of options — until they have a handful, based on their rating, class and risk tolerance, among other criteria.

In a demonstration I saw, the choices were whittled down quickly, first from almost 500 products, to 314, then to 40.

Reports generated from VisibleChoice are compliance-approved as long as they are preceded by the VA's prospectus (which is also available on the platform).

A report comparing annuity features is generated once an adviser has narrowed the choices to a workable few. During my demonstration, the program was set to select four products, which were displayed in columns with plenty of room to see the pertinent details.

Advisers or broker-dealers can set the system to display as many or as few products for comparison as they want, though.

Broker-dealers can limit the VA products that their advisers can see to those included in their sales agreements with insurers or open up the view to the universe of 2,000 or so products contained in the system's database.

VisibleChoice's price structure is tiered, based on the number of brokers who will use it.

Small broker-dealers will spend only about $10.95 per adviser per month. There also is an individual offering at $19.95 monthly.

PRICE COMPARISON DIFFICULT

Morningstar's Annuity Intelligence is the only real competition in this market, but a price comparison is difficult because the firm doesn't publish its pricing information.

Morningstar's reach is one advantage, though. Many broker-dealers make the firm's popular Advisor Workstation available to their advisers, and Annuity Intelligence can be added to or bundled with those offerings.

Launched in May, Annuity Intelligence updates and integrates the Annuity Intelligence and Annuity Analyzer products. (Morningstar acquired the Annuity Intelligence Report tool from Advanced Sales and Marketing Corp. in 2010.)

At this point, it is difficult to come up with any critical differences between the products.

Insurance Technologies has made it simpler for advisers and broker-dealers to customize the various filters used in its products, and it has an edge when it comes to the ability to manipulate and sort data on the screen.

Advisers are able to compare up to four variable annuity products at once with VisibleChoice and a maximum of three using Morningstar's offering.

[email protected] Twitter: @ddjanowski

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