Financial advisers are fuming over a letter The Hartford sent to clients which entices them to swap their variable annuities for a replacement. Why so angry? Advisers say the new VA actually strips away generous guarantees.
Infuriated financial advisers are telling their clients to disregard a letter from The Hartford Financial Services Group Inc. which entices them to swap their variable annuities for a replacement advisers say actually strips away generous guarantees.
“The clients have these nice enhanced death and withdrawal guarantees, and now they're being asked if they'd like to switch,” said Thomas Fross, a partner at Fross and Fross Financial LLC. “But they're not being told that they'll lose their guarantees. The withdrawal percentages aren't even close [to those of the old contracts].”
In an Aug. 23 letter that was sent to clients and obtained by InvestmentNews, The Hartford informed clients of its “Personal Retirement Manager Exchange Program Opportunity,” which would allow them to trade their old contracts for a new variable annuity.
The insurer had introduced “new features” not available at the time clients purchased their earlier contracts, the letter explained, and the new VA is available to those who meet “certain eligibility requirements.”
The letter did not explain any of the new features.
A copy of the letter was sent simultaneously to the clients' financial advisers, according to several reps contacted by InvestmentNews, along with a list of clients that would be receiving it.
The letter has angered advisers, who said they weren't given any advanced warning of the mailing and are now forced to do damage control with clients.
“It's outrageous, and it undermines the relationship clients have with their adviser,” said one adviser, who asked not to be identified.
The Hartford spokesman Tim Benedict wrote in an e-mail that “consistent with our standard practice, our letter to all eligible Hartford variable annuity clients was also sent to each client's financial adviser.”
“The letter simply invited our existing variable annuity clients to contact their registered representative to find out more about the new Hartford Personal Retirement Manager product, which includes new features not available in their contract,” he added.
But consumer advocates are not happy about the letter, either. “If what the advisers say is true, then this is an unfair and deceptive practice: You can’t tell people that this is more favorable when in fact the client is losing some valuable benefits,” said consumer advocate Birny Birnbaum, executive director of the Center for Economic Justice.
“Basically companies made promises that were too costly for them to keep,” he added. “So I understand why they’ve stopped selling variable annuities or why they would like to see if they could move people out of those products.”
Angry advisers said The Hartford should have asked their permission to contact clients.
“If they said ‘Here's a list of your eligible clients. Would you like us to send out a letter to them?,' then that would be fine,” one adviser said. “But this is bold and borderline.”
What's worse, advisers said, is that the suggested VA exchange is not a good deal for many clients.
The older contracts, such as the Hartford Lifetime Income Builder II, had rich benefits. For instance, the benefit base of the contract was able to grow by up to 10% if the market performed well. Some clients with older contracts had access to generous withdrawal percentages upward of 5%.
Changing to a new contract means clients would lose access to those generous guarantees, as the new product doesn't have the same features as the older VAs, advisers said.
As a result, advisers said they are contacting each of their clients who received the letter to explain why switching might be a mistake.
“Clients don't understand: They get this letter that says this exchange is good, and they want to do it,” said Kevin VanDyke, president of Bloomfield Hills Financial. He has 30 Hartford contracts on his books, and all of those clients received the letter.
Mr. VanDyke said he is contacting each of those clients individually to tell them to disregard the message. “It's surprising they'd send out a blanket letter, when there are only a small number of people who would benefit,” he said.
